Paying for What Doesn't Count: How exorbitant executive compensation and frivolous advertising hurts New York hospital patients

Communications Workers of America District One

PAYING FOR WHAT DOESN’T COUNT:

How exorbitant executive compensation and frivolous advertising hurts New York hospital patients

ABOUT DISTRICT ONE OF THE COMMUNICATIONS WORKERS OF AMERICA AND THIS REPORT

This report was researched and written by Margaret Stix and Glenn von Nostitz of Lookout Hill Public Policy Associates and designed by Tracey Maurer for District One of the Communications Workers of America.

District One of the Communications Workers of America represents nearly 150,000 workers in 200 CWA local unions from New Jersey to New England. Our diverse membership works in many different sectors of the economy: telecommunications; state, local, and county government; health care; higher education; manufacturing; broadcast and cable television; commercial printing and newspapers.

More than 11,000 District One members provide direct patient care and support to New Yorkers and their families. All CWA members and their families have been or will be patients. Recognizing that short staffing, lack of supplies, and safety issues are far too common in our health care system, we are coming together to seek solutions that put our patients first.

CWA Healthcare workers: The Patient is Our Purpose, the Union is Our Voice!

Table of ContentsEXECUTIVE SUMMARY

TOWARD SAFER, HIGHER QUALITY HOSPITALS

NEW YORK’S NONPROFIT HOSPITALS HAVE SERIOUS QUALITY AND PATIENT SAFETY PROBLEMS

BETTER MEDICAL OUTCOMES DEPENDS ON SAFE STAFFING LEVELS

WHERE THE MONEY IS FOR SAFE STAFFING

COMPENSATION, BY THE NUMBERS

WHY NONPROFIT HOSPITAL EXECUTIVES SHOULD BE PAID LESS

ADVERTISING AND LOBBYING EXPENDITURES

RECOMMENDATIONS

ENDNOTES

APPENDIXES

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3

THE URGENT NEED FOR SAFER NEW YORK NONPROFIT HOSPITALS

The deaths of as many as 400,000 patients in US hospitals each year are preventable, according to a widely reported study in the Journal of Patient Safety in 2013. Patient care understaffing is one of the biggest contributors to preventable hospital deaths and other serious hospital medical complications. More hospital-acquired infections, medication errors, avoidable readmissions and other harms result when nurses and aides care for two to three times too many patients as they should. Studies in major journals such as the Journal of the American Medical Association establish that hospitals with higher nurse-to-patient ratios have lower mortality rates than hospitals with lower nurse-to-patient ratios.

New Yorkers can hardly miss advertisements trumpeting a hospital’s top heart center or relating the heartwarming story of a patient saved by exemplary care. But the unfortunate reality is that New York’s nonprofit hospitals perform significantly worse overall than hospitals nationally on key indicators of quality and patient safety. So it is especially urgent that they end understaffing. They could make enormous progress in doing so by redirecting at least $300 million a year now wasted on exorbitant executive compensation and needless advertising to buttressing staffing levels in direct care units.

WHERE THE MONEY IS FOR SAFE STAFFING: EXORBITANT EXECUTIVE COMPENSATION AND NEEDLESS ADVERTISING

According to IRS Form 990 returns filed by 155 New York nonprofit hospitals, 412 executives received compensation of more than $350,000 in 2012, for a total of $339 million. Compensation of 92 executives at 41 hospitals exceeded $1 million and 13 executives received over $2 million. Compensation to many executives included severance payments as high as $1 million and contributions to highly-lucrative retirement plans. As Crain’s New York Business reported, “New York’s nonprofit hospitals have jumped on the for-profit corporate

bandwagon in embracing generous retirement plans,” noting that in some cases the payouts from these plans “rival their annual seven-figure base salaries.”

Such compensation is completely unjustified:

• Enormous pay packages do not correspond with better hospital quality or greater patient safety. Medicare adjusts how much hospitals are paid based on performance on indicators like readmissions rates and healthcare associated infections. CEOs of the worst performing New York nonprofit hospitals are still paid extraordinarily well—in some instances more than $1 million. A major reason is that hospital boards of trustees largely base executive pay on the amounts received by overpaid executives of other hospitals. Far too little weight is given to CEO records respecting readmissions, medical complications, and other indicators of hospital quality. A 2014 Journal of the American Medical Association: Internal Medicine study found no link between nonprofit hospital CEO pay and key quality indicators.

• Nonprofit hospital executive compensation is largely paid by taxpayers. New York nonprofit hospitals generate at least half of their net patient service revenue from Medicare and Medicaid reimbursements, and are exempt from payment of well over a billion dollars in taxes each year. With such enormous government subsidies, nonprofit hospitals essentially function as public institutions. Hospital executives should be compensated accordingly. No one should become a multimillionaire working for a charity at public expense.

• The New York City Health and Hospitals Corporation demonstrates that reasonable compensation can be coupled with good patient care. On quality and patient safety indicators, HHC hospitals perform at least as well as and, in some cases, better than comparable nonprofit hospitals. Yet in 2012, the HHC president received a salary of $366,836 plus a car—a small fraction of CEO compensation at New York’s nonprofit hospital systems. He oversaw a nearly $7 billion operation with 11 acute-care hospitals, four diagnostic and treatment

Executive Summary

4 Communications Workers of America District One PAYING FOR WHAT DOESN’T COUNT • MAY 2015

centers, four skilled nursing facilities, 70 community clinics and a managed care plan. The heads of HHC acute-care hospitals were also paid a fraction of the compensation of their nonprofit peers.

When top hospital executives receive as much as 75 times the average annual salary of some of their direct care staff—nursing assistants earn an average of $32,380 a year, according to the New York State Labor Department—they contribute to income inequality at taxpayer expense.

New York hospitals report spending more than $120 million on advertising in 2012 that had little or no medical benefit or value to patients. The pool of potential patients is fixed, so new patients are merely siphoned off from other hospitals. Few prospective patients are able to evaluate the claims made in ads and typically don’t choose their hospitals, but are directed to them by physicians with admitting privileges. Finally, advertising begets more advertising and a “medical arms race” among hospitals that seek to protect their market shares by purchasing and promoting the same state-of-the art equipment touted by competitors.

To ensure that hospitals improve their clinical quality and patient safety, New York State should enact:

• The Safe Staffing for Quality Care Act. This legislation setting minimum licensed nurse-to-patient ratios would be the single most important step toward improving New York hospital patient safety.

• A cap on hospital executive compensation. Executive compensation should be capped at: (i) $450,000 at hospitals with revenues of at least $1 billion; (ii) $400,000 at hospitals with revenues of $400 million to $1 billion; and (iii) $350,000 at hospitals with revenues of less than $400 million. These amounts are in line with the compensation paid by the New York City Health and Hospitals Corporation. If these caps had been in effect in 2012, hospitals would have saved at least $190 million that could have augmented patient care staffing.

• Legislation requiring full disclosure of executive compensation determinations. Since nonprofit hospitals exist through enormous public subsidies, the factors that determine compensation and the weight given each factor should be publicly disclosed. An informed public could then press for compensation to be based on what counts most: patient safety and hospital quality.

Hospitals should call an advertising truce.

If hospitals had spent $100 million less on advertising in 2012, $20 million would still have been left to inform the public about healthcare issues that matter and more resources would have been available for patient care.

5

Hospitals may advertise that they are the “best” or the “top ranked” but the unfortunate reality is that the Empire State ranks near the bottom on national indicators of hospital quality and patient safety. Understaffing is a significant contributor to New York’s overall poor performance. Ending understaffing would go a long way toward improving the state’s poor hospital safety and quality record.

NEW YORK’S NONPROFIT HOSPITALS HAVE SERIOUS QUALITY AND PATIENT SAFETY PROBLEMS

The US Centers for Medicare and Medicaid Services (CMS) and Agency for Healthcare Research and Quality (AHRQ) have found that New York hospitals perform worse on measures of hospital quality and patient safety than hospitals nationally. Hospital patient safety evaluations issued by the Leapfrog Group® and Consumer Reports have come to similar conclusions. Indeed, New York hospitals overall perform comparatively poorly on all generally accepted hospital rankings and scorecards.

Poor performance on Medicare hospital quality incentive programs

In 1999, To Err is Human: Building a Safer Health System, the landmark report by the Institute of Medicine, documented a veritable epidemic of preventable deaths in US hospitals and jump-started today’s hospital patient safety movement.1 But 11 years later, a study in the New England Journal of Medicine reported that no progress had been made in reducing avoidable harmful adverse events.2

As the New York Times reported, “instead of improvements, the researchers found a high rate of problems. About 18 percent of patients were harmed by medical care, some more than once, and 63.1 percent of the injuries were judged to be preventable.” 3 Researchers found that 2.4 percent of the problems were serious enough to have caused or contributed to a patient’s death.

To prod hospitals to improve, the federal Affordable Care Act of 2010 authorized three programs that adjust Medicare payment reimbursements based on hospital performance: the Value Based Purchasing (VBP) Program, Readmissions Reduction Program (RRP) and Hospital Acquired Condition (HAC) Program (collectively, the Medicare hospital quality incentive programs). Each program evaluates hospitals on a series of quality and safety measures that are broad-based, risk-adjusted and rigorously reviewed prior to their implementation. Consequently, performance on the Medicare hospital quality incentive programs is considered to be the most reliable indicator of hospital quality and safety.

In late 2014, CMS issued hospital Medicare reimbursement adjustments for the current fiscal year (FY 2015). As shown in Figure 1 and discussed below, New York hospitals performed worse overall than hospitals nationally in all three programs and are consequently receiving higher penalties.

Payment adjustments under these programs can have a substantial impact on a hospital’s bottom line. For instance, its HAC penalty this year will reduce Kaleida Health’s Medicare reimbursements by about $1.7 million.4

Toward Safer, Higher Quality Hospitals

A major study found that

18% of patients were harmed by medical care

63% of the injuries were preventable

2.4%were serious enough to have caused or contributed to the patient death


• Value Based Purchasing Program (VBP). Medicare reimbursements are initially reduced by 1.5 percent and then are adjusted upward based on quality of care metrics, including the hospital’s performance on medical procedures, mortality rates and patient satisfaction, as measured by survey responses. A bonus is paid for better than average performance.

On average, New York hospitals performed worse than US hospitals on the VBP. For FY 2015, New York is among the bottom ten states in the share of hospitals receiving a bonus and among the top ten states in the share receiving a penalty. According to a Kaiser Health News analysis, the average bonus nationally is 0.44 percent and the average penalty is 0.30 percent.5 According to an analysis of CMS data, the average bonus for New York hospitals is only 0.30 percent and the average penalty is 0.33 percent.

• Readmissions Reduction Program (RRP). A readmission may result from a healthcare-associated infection or other adverse medical event that becomes apparent soon after discharge. Up to three-quarters of readmissions are believed to be preventable.6 A penalty of up to three percent of Medicare inpatient payment claims can be imposed based on 30-day readmission rates of patients initially admitted for five conditions: acute myocardial infarction, heart failure, pneumonia,

acute exacerbation of chronic obstructive pulmonary disease, and elective total hip or knee arthroplasty. The penalty is adjusted to account for risk factors such as patient age, illness severity and additional medical complications.

Eighty percent of New York hospitals are being penalized for high readmissions rates during FY 2015. The share of hospitals being penalized in New York is higher than all but five other states. New York’s average penalty of 0.73 percent is higher than all but 11 states and the District of Columbia.7

• Hospital Acquired Condition (HAC) Reduction Program. Penalties are imposed based on rates of central-line associated bloodstream infections, catheter-associated urinary tract infections, and serious complications. The latter is based on eight types of injuries, including blood clots, bed sores, surgical cuts, broken hips and collapsed lungs. Starting in October 2014, hospitals in the lowest quartile of HAC performance were penalized up to one percent of total Medicare payments for their frequency of adverse events.

HAC penalties were imposed on 26 percent (41) of New York hospitals for FY 2015, while HAC penalties were imposed on only 14 percent of US hospitals.

Figure 1: US & NY FY 2015 HOSPITAL REIMBURSEMENT ADJUSTMENTSCenters For Medicare & Medicaid Services – FY 2015

80

70

60

50

40

30

20

10

0% w/VBP Bonus % w/VBP PenaltyAvg. VBP Bonus Avg. VBP Penalty Avg. RRP Penalty

Rate% w/HAC Penalty

58

4844

35

4550

3033

63

73

14

26

US NY

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Poor performance on other measures of hospital performance and patient safety

In addition to their poor performance in Medicare hospital quality incentive programs, New York hospitals also perform worse overall than hospitals nationally on respected indicators of hospital patient safety and quality issued by the Leapfrog Group®, US Agency for Healthcare Research and Quality, Truven Health Analytics, and Consumers Union.8

The Leapfrog Group® is a consortium of major employers that purchase health insurance and promote better US healthcare. As shown in Figure 2 and Figure 3, only 42 percent of New York hospitals scored an A or B on Leapfrog Group’s annual Hospital Patient Safety Grades for 2014,9 compared to 59 percent of US hospitals. Nearly 14 percent of New York hospitals scored a D or an F, more than twice the six percent of hospitals nationally.

Truven Health Analytics, a multinational health care research company formerly operated by Thomson Reuters, rates the nation’s hospitals annually on factors including mortality rates, patient complication rates, adverse patient safety events, 30-day readmission rates and patient satisfaction. In its 2015 and 2014 reports, Truven ranked New York hospitals in the lowest quintile.10 Truven included no New York hospital among its 100 top hospitals and no New York hospital system among its top 15 hospital systems.

The federal Agency for Healthcare Research and Quality (AHRQ) also compares hospital quality among states. Its 2013 National Healthcare Quality Report gave New York hospitals the seventh lowest quality score in the nation and categorized their quality as “weak.” 11 Important AHRQ measures in which New York hospitals rated “worse than average” included:

• Postoperative sepsis per 1,000 elective surgery admissions;

• Deaths per 1,000 adult hospital admissions with congestive heart failure;

• Deaths per 1,000 adult hospital admissions with pneumonia; and

• Deaths per 1,000 hospital admissions with expected low mortality.

Finally, only 30 percent of New York hospitals, accounting for less than one-fifth of hospital inpatient discharges, scored above the national average in Consumer Report’s 2014 Hospital Safety Scores while three of the 13 bottom-scoring hospitals in the nation were found to be in New York.

BETTER MEDICAL OUTCOMES DEPENDS ON SAFE STAFFING LEVELS

Many New York hospitals assign too few direct care staff to ensure that patients get good care. Nurses at New York Methodist Hospital, for instance, filed 3,000 unsafe staffing protests in 2013 and 2014 and reported that nurse-to-patient ratios in medical-surgical units were as high as one-to-12 when ratios of one-to-four are recommended.12

Understaffing hurts patients

The danger to patients from understaffing has been amply documented. A groundbreaking study of 232,342 surgical patients in the Journal of the American Medical Association ( JAMA) found that patients in hospitals with a 1:8 nurse-

A

B

C

D

E

Figure 2: LEAPFROG GROUP NY HOSPITAL PATIENT SAFETY GRADES – 2014

22%

1%

20%

43%

14%

A

B

C

D

E

Figure 3: LEAPFROG GROUP US HOSPITAL PATIENT SAFETY GRADES – 2014

32%

0%

27%

35%

6%


to-patient ratio have a 31 percent greater risk of death than patients in hospitals with a 1:4 nurse-to-patient ratio. Each additional patient per nurse was associated with a seven percent increase in the likelihood of dying within 30 days of admission and a seven percent increase in the odds of failure-to-rescue.13 There is also a high correlation between understaffing of RNs and the incidence of hospital acquired pneumonia.14

Very low birth-weight infants are a high-risk population, accounting for half of infant deaths in the US each year. Because of their vulnerability, the consequences of understaffing are particularly acute in neonatal intensive care units, where nurse-to-patient ratios of 1:3 for infants least at risk and less than 1:1 for those most at risk are recommended. A JAMA study found that 68 percent of the highest risk infants were in understaffed units and that their risk of infection more than doubled (from a predicted rate of 9 percent to an infection rate of 21 percent).15 Neonatal infection more than doubles the rate of infant mortality.

And a study in the Journal of Nursing Care Quality documented what may be apparent to many hospital patients, that short-staffing leads to lapses in necessary care. Nine elements of regularly missed nursing care were identified—ambulation, turning, delayed or missed feedings, patient teaching, discharge planning, emotional support, hygiene, intake and output documentation, and surveillance—which can potentially impact the quality and cost of patient outcomes. For example, failure to ambulate and turn patients was linked to “to new onset delirium, delirium, pneumonia, and increased length of stay and delayed discharge.”16

Overwork, fatigue, errors and burnout

Overwork and fatigue due to understaffing leads to medical errors and other adverse events. In one survey, 27 percent of nurses admitted that they had made an error and 65 percent reported they had nearly made an error at work because of fatigue.17 In a study of 11 hospitals, medication errors increased by 18 percent for every 20 percent decrease in staffing below recommended minimums.18 Overwork caused by understaffing can also lead to staff burnout. A 2012 study published in the American Journal of Infection Control linked nurse burnout to higher rates of healthcare-associated infections costing hospitals millions of dollars a year.19

WHAT NEW YORK HOSPITAL WORKERS SAY ABOUT STAFFING.

“ I have witnessed actual physical harm to one of my patients because of poor staffing in a prior shift. It made me physically ill. Continued short staffing in my unit has led to so many preventable conditions and poor care.”

–Kelly P., RN

“ When our nursing staff is unable to provide patient care in a timely fashion, it affects the ability of our other professionals to treat their patients. So there is a big “circle” of delayed care that occurs.”

–Ron H., Clinical Lab Scientist

“ I am now forced to work faster and faster to churn patients out of surgery to increase the higher number of cases and the money the hospital gets—Profits. I hate what I am forced to do. I don’t feel like a nurse anymore, just an assembly worker at GM. Would you be happy if you knew I was rushed to do your surgery?”

–Kathy B., RN

“ If you drop your child off at daycare, there are laws which state how many children there can be per provider. But if you drop that same child at the ER in a health crisis, no laws protect them by making sure that there will be a nurse able to give them the attention that they need, possibly in order to save their life.”

-Sarah B. RN and mother

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Appropriate staffing levels improve outcomes

Extensive research has shown, not surprisingly, that higher staffing levels correlate with reduced rates of healthcare associated infections, other adverse outcomes and readmissions. A JAMA study on the impact of understaffing concluded that “substantial decreases in mortality could result from increasing registered nurse staffing, especially for patients who develop complications.” 20

A study of nurse staffing that examined the records of five million medical patients and 1.1 million surgical patients treated at 799 hospitals found that:

• In hospitals with higher rates of RN staffing, medical patients had four to 12 percent reductions in adverse outcomes such as urinary tract infection, pneumonia, shock, upper gastrointestinal bleeding and longer hospital stays, depending on the adverse event measured;

• Higher staffing at all levels of nursing—RNs, LPNs and aides—resulted in a two to 25 percent reduction in adverse outcomes, depending on the outcome; and

• Major surgery patients in hospitals with high nurse- to-patient ratios had lower rates of urinary tract infections and failure to rescue.21

An AHRQ-funded study found that adding one more hour of staffing per patient day reduced the likelihood that a surgical patient would contract pneumonia by nearly nine percent.22


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COMPENSATION, BY THE NUMBERS

As income tax-exempt entities, hospitals are required to annually report the compensation of trustees, directors, officers, key employees23 and the five highest paid employees. On Schedule J of the IRS Form 990 return, compensation is broken out by base compensation, bonus and incentive compensation, other reportable compensation, deferred compensation, and nontaxable benefits. Other reportable compensation can include: payment for earned time off; severance; contributions to a 401(k), 403(b) or nonqualified deferred compensation plan; and country club memberships. Nontaxable benefits may include healthcare and other insurance, housing allowances, and tuition remission for family members. For the purposes of this report, compensation includes all of these except nontaxable benefits.24

The million dollar club

The compensation packages of New York nonprofit hospital executives are exceedingly generous. Review of 2012 IRS Form 990 returns for 155 New York nonprofit hospitals identified 412 executives who received compensation exceeding $350,000, totaling $339 million.25 A table showing the reported compensation of each identified executive is available upon request.

Chief executive officer compensation topped $3 million at NYU Hospitals Center, $4.4 million at Montefiore Medical Center, $3.6 million at New York-Presbyterian Hospital, $3.5 million at North Shore University Hospital/NS-LIJ Health System and $3.2 million at Mount Sinai Hospital. As shown in Table 1, 92 executives at 41 hospitals and healthcare systems received at least $1 million in compensation in 2012.26

Pay at many smaller hospitals is also exceedingly generous

High earners are not exclusive to the largest hospitals. In relation to their employer’s revenue, CEO compensation at many small hospitals far exceeded compensation at large hospitals such as NYU Hospitals Center ($24.10 per $10,000 revenue),28 Maimonides Medical Center ($24.69),

Where The Money Is for Safe Staffing

Table 1: HOSPITAL EXECUTIVES PAID AT LEAST $1 MILLION IN 2012. Hospital/Healthcare System

Number

Total $ million

New York-Presbyterian Hospital 15 27.7North Shore University Hospital/NS-LIJ Health System

12 22.2

Montefiore Medical Center 5 10.3NYU Hospitals Center 5 9.9Mount Sinai Hospital 5 8.6Memorial Sloan-Kettering Cancer Center 4 7.0Catholic Health System of Long Island 4 5.7Beth Israel Medical Center/Continuum Health Partners

3 4.9

St. Francis Hospital-Roslyn 3 3.9Lawrence Hospital Center 1 3.9Hospital for Special Surgery 3 3.9Jamaica and Flushing Hospital Medical Centers/MediSys Health

2 2.6

Long Island Jewish Medical Center 2 2.2Rochester General Hospital 1 2.1Unity Hospital of Rochester 1 1.8White Plains Hospital Medical Center 1 1.8Phelps Memorial Hospital 1 1.9Bronx-Lebanon Hospital Center 1 1.8Winthrop University Hospital 1 1.8St. Charles Hospital 1 1.6Hudson Valley Hospital Center 1 1.6Maimonides Medical Center 1 1.5Catholic Health System -Buffalo 1 1.5Northern Westchester Hospital 1 1.5Brooklyn Hospital Center 1 1.4Staten Island University Hospital 1 1.4Kaleida Health 1 1.3United Health Services/Wilson and Binghamton Hospitals

1 1.3

Lutheran Medical Center 1 1.3Kingsbrook Jewish Medical Center 1 1.3New York Methodist Hospital 1 1.2Albany Medical Center 1 1.2Strong Memorial Hospital 1 1.1Huntington Hospital 1 1.1Good Samaritan Hospital Medical Center –Long Island

1 1.1

Our Lady of Lourdes Memorial Hospital 1 1.1South Nassau Communities Hospital 1 1.1St. Luke’s-Roosevelt Hospital Center 1 1.0Lenox Hill Hospital 1 1.0Orange Regional Medical Center 1 1.0Vassar Brothers Medical Center 1 1.0TOTAL 92 152.827


Hospital for Special Surgery ($20.41) and Staten Island University Hospital ($26.37). As shown in Table 2, CEOs of some modest sized hospitals were paid in excess of $1 million in 2012.

Most hospitals paid bonuses, some paid former executives

Seventy percent of hospitals that compensated executives $350,000 or more in 2012 included bonus/incentive payments in their compensation packages. These payments totaled $61.4 million, compared to base salaries totaling $203.7 million.

• Several CEOs were paid bonuses/incentives of more than $1 million, including the CEOs of North Shore-LIJ Health System ($1.6 million), Mount Sinai Hospital ($1.5 million) and New York-Presbyterian Hospital ($1.3 million).

• A bonus can exceed the base salary. For instance, the CEO of Our Lady of Lourdes Memorial Hospital was paid a bonus of $611,998 on top of a base salary of $378,164 and the CEO of Northern Westchester Hospital received a $911,895 bonus/incentive payment, in addition to base compensation of $608,999.

• Hospitals paid bonuses each worth hundreds of thousands of dollars to executives in charge of marketing, public affairs, human resources, real estate, investments, and strategic planning who had no responsibility for patient care.

A number of hospitals also reported substantial payments to former executives in 2012. New York-Presbyterian Hospital paid its former CEO and president $5.6 million, making him the most highly compensated hospital executive in New York, despite his retirement.31 Additional hospitals that paid former executives include Brooklyn Hospital Center, Mount Sinai Hospital, and St. Joseph’s Hospital Medical Center in Syracuse.32

Nonqualified “top hat” deferred compensation plans

In 2012, Crain’s New York Business reported, “New York’s nonprofit hospitals have jumped on the for-profit corporate bandwagon in embracing generous retirement plans as part of a recruitment and retention strategy for senior management,” noting that in some cases the payouts from these plans “rival their annual seven-figure base salaries.”33 IRS Form 990 returns for 2012 report, for example, that North Shore-LIJ set aside more than $1 million in a nonqualified plan for its CEO and almost $640,000 for an executive vice president and medical school dean. Catholic Health Services of Long Island set aside $344,596 for an executive vice president and chief financial officer.

Top hat plans allow “a select group of management or highly compensated employees” who earn salaries substantially higher than those of other employees to defer payment of compensation.34 Long common for highly compensated corporate executives, these top hat plans are exempt from strict requirements and limitations on contributions and

Table 2: CEO COMPENSATION AT SELECTED NONPROFIT HOSPITALS WITH LESS THAN $250 MILLION IN REVENUE IN 2012.

Hospital

County

2012 revenue, $ millions

2012 CEO compensation

Compensation per $10,000 of revenue

Cortland Regional Medical Center Cortland 100.5 $461,839 $45.95

Eastern Long Island Hospital Suffolk 44.5 $468,682 $105.33

Kingsbrook Jewish Medical Ctr. Kings 201.7 $1,288,386 $63.87

Hudson Valley Hospital Center Westchester 166.3 $1,620,41529 $97.66

Mount Saint Mary’s Hospital Niagara 89.3 $764,578 $85.62

Nathan Littauer Hospital Fulton 95.9 $448,825 $50.97

New York Downtown Hospital New York 219.7 $986,407 $44.89

Northern Dutchess Hospital Dutchess 74.2 $449,005 $60.51

Northern Westchester Hospital Westchester 241.6 $1,550,598 $64.34

Phelps Memorial Hospital Westchester 217.4 $1,854,67830 $85.49

St Mary’s Healthcare Montgomery 149 $813,087 $54.43

Southampton Hospital Suffolk 121.0 $596,354 $49.28

Westchester Square Medical Center Bronx 69.3 $490,070 $70.71

13

benefits that govern 401(k) and other qualified benefit plans. These plans are funded by employers and there is no cap on the amount such a plan can pay. Benefits may be paid upon retirement, separation from service, disability, death, or upon reaching a predetermined number of years of service as a retention incentive.

Generous severance payments, too

Leaving hospital employ can also be very remunerative. Eleven hospitals reported 18 severance payments of at least $100,000 in 2012. Catholic Health System of Long Island made the largest payments, including $1 million to the President/CEO who retired in July 2011, and $1.8 million to his successor, on top of nearly $1.3 million in compensation for a mere eight months of service. Other large severance payments that year included $1.7 million paid by Kaleida Health to several executives, including $457,437 to the chief operating officer. Even hospitals reporting severe financial distress made large severance

payments, notably Wyckoff Heights Medical Center, which paid $425,000 in severance to one executive and $125,003 to another, despite all but defaulting on $109 million in state-secured bonds.35

Extras

The top executives of some New York hospitals enjoy benefits long considered the preserve of Fortune 500 executives, such as residences for personal use;36 personal maids, chefs or chauffeurs;37 first class travel;38 and country club memberships.39

WHY NONPROFIT HOSPITAL EXECUTIVES SHOULD BE PAID LESS

Running a hospital or hospital system is a complex and demanding job, but too many New York nonprofit hospital executives are paid undeservedly high compensation. CEOs of hospitals with mediocre or poor quality and safety records are nonetheless lavished with enormous compensation packages paid for largely by taxpayers. Moreover, the example set by New York City’s Health and Hospitals Corporation demonstrates that qualified hospital management is possible without a high price tag.

Executive compensation is unrelated to hospital quality or patient safety

It is a truism that talent costs money. Therefore, hospitals contend that high compensation is necessary to attract CEOs who deliver the highest quality of care. However, a 2014 study in the Journal of the American Medical Association: Internal Medicine found no link between nonprofit hospital CEO pay and key quality indicators such as mortality and readmission rates.40 These findings echo a 2012 study by the New Hampshire Center for Public Policy Studies, which found virtually no correlation between executive compensation and quality of care of hospitals in that state.41

The same conclusion applies to New York’s nonprofit hospitals. There is no evidence that higher-paid hospital executives deliver better patient safety or medical outcomes than lower-paid hospital executives.

Paying hospital executives more does not lead to higher quality

If high executive compensation correlated positively with top quality and patient safety performance, then it would follow that the highest paid executives would lead hospitals with the best quality and patient safety records. But that

HOW DO THESE JOBS ADVANCE PATIENT SAFETY?

Some nonprofit hospital administrators with no responsibility for patient care were nonetheless paid enormous compensation in 2012, such as:

• Senior VP Strategic Planning, North Shore University-LIJ, $1,013,422;

• SVP for Real Estate, NYU Hospitals Center, $908, 844;

• VP for Strategy, New York-Presbyterian Hospital, $925,124;

• Special Senior Advisor, New York-Presbyterian Hospital, $822,804;

• Special Advisor, Montefiore Medical Center, $450,654;

• Senior VP Corporate Initiatives, Beth Israel Medical Center/Continuum, $409,533.

Positions like these help explain why administration accounted for 25.3 percent of hospital spending in the US, compared to 12.4 percent in Canada in 2011


is not the case in New York. Instead, no hospital with a $1 million CEO was among the 13 hospitals which performed in the top quartile for both the Medicare Value Based Purchasing and Readmissions Reduction Programs (see Figure 4 and Appendix A1).42

All the CEOs at these better performing hospitals earned less than $1 million and all but four earned less than

$600,000. As Consumer Reports noted, “Some well-known hospitals have less-than-outstanding safety scores,” among them New York-Presbyterian and Mount Sinai Medical Center,43 which provided compensation of more than $3 million to their respective CEOs in 2012.

Paying hospital executives less does not lead to lower quality.

If higher compensation resulted in better care, CEOs paid least would be over-represented among the hospitals with the worst medical outcomes. Again, that is not the case. A total of 45 New York nonprofit hospitals with revenues greater than $25 million paid their CEOs less than $500,000 in 2012. But only three (Brookhaven Hospital, Glen Cove Hospital and Rome Memorial Hospital) are represented among the hospitals in the bottom quartile of nonprofit hospitals on both Medicare’s VBP and Readmissions Reduction programs for FY 2015 (see Figure 5 and Appendix A2).45 Four of them (Columbia Memorial, Jamaica Hospital, St. Luke’s Roosevelt and Wyckoff Heights) were also penalized under the Hospital Acquired Condition program for FY 2015.

$3 million

Some well-known hospitals have had less-than-outstanding Consumer

Reports safety scores, like New York-Presbyterian and Mount Sinai

Medical Center, which each provided compensation in excess of

to a CEO in 2012.

Figure 4: 2012 CEO COMPENSATION AT NY NONPROFIT HOSPITALS WITH THE BEST VBP AND RRP PERFORMANCE FOR FY 2015

Centers For Medicare & Medicaid Services

$1,200,000

$1,000,000

$800,000

$600,000

$400,000

$200,000

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Coincidentally, three of the worst performing hospitals also paid their CEOs more than $1 million, including Beth Israel Medical Center with more than $2 million in combined compensation, among the highest in the state. And, despite their records, four CEOs of the worst performing hospitals were rewarded with bonus/incentive payments in 2012.

Despite their hospital’s performance, some of these CEOs were paid proportionately far more than those of nearby hospitals of similar size and better results. For instance:

• Health Alliance Broadway (Kingston) paid its CEO $52.05 per $10,000 of revenue, compared to $15.59 per $10,000 at Vassar Brothers Medical Center, across the river in Poughkeepsie;46

• St Luke’s Cornwall Hospital paid its CEO $42.68 per $10,000 of revenue, exceeding the $27.36 per $10,000 revenue paid to the CEO of its neighbor, Orange County Medical Center; and

• Rome Memorial Hospital paid its CEO $30.02 per $10,000 of revenue versus the $22.91 per $10,000 in revenue paid to the CEO of St. Elizabeth Medical Center, its Oneida County neighbor.

Hospital trustees have a duty to provide quality care

As with all corporations, executive compensation is determined by a board. However, New York nonprofit hospitals are distinguishable from for-profit corporations in that they are incorporated with the specific principal purpose of delivering quality health care to their communities. This imposes a duty on hospital trustees to inquire whether there are practices in place that address deficiencies in patient care and to remedy them.47 For this reason, an executive compensation policy that puts revenue growth ahead of patient care would be incompatible with the fiduciary duty of that hospital’s board.

Three of the worst performing hospitals paid their CEOs more than

Figure 5: 2012 CEO COMPENSATION OF NY NONPROFIT HOSPITALS WITH THE WORST VBP AND RPP PERFORMANCE FOR FY 2015

Centers For Medicare & Medicaid Services

$2,250,000

$2,000,000

$1,750,000

$1,500,000

$1,250,000

$1,000,000

$750,000

$500,000

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Reasonable compensation can attract good managers

The claim that the high compensation levels at New York nonprofit hospitals are necessary to attract qualified talent is further refuted by the patient care and safety records of New York City Health and Hospitals Corporation (HHC) hospitals. While paying executives reasonable compensation, HHC hospitals averaged better performance on hospital quality measures than New York nonprofit hospitals overall.

The HHC is composed of 11 acute care general hospitals, four skilled nursing facilities, six diagnostic and treatment centers, a home healthcare agency and more than 70 community-based clinics. HHC also operates a managed-care health plan. The HHC President/Executive Director was paid $366,836 in 2012,53 a small fraction of the $1 million to $4 million in compensation received by so many New York nonprofit hospital system CEOs.

HHC’s 11 acute care hospitals are large institutions with revenues as high as $783 million. The responsibilities of their executive directors are at least comparable to those of their nonprofit hospital peers, but HHC executive directors are paid much less, as illustrated by the comparison of compensation at two HHC hospitals and two New York City nonprofit hospitals with comparable revenue shown in Figure 6.54

Despite paying executives less, HHC hospitals performed as well as, and in some cases better than, well-regarded New York nonprofit hospitals on Medicare hospital quality incentive programs. As shown in Table 3, HHC’s average Medicare readmissions penalty for FY 2015 is 0.61 percent, better than both the US average of 0.63 percent and the New York State average readmissions penalty of 0.73 percent.

“Rebuttable presumption is the equivalent of a school-aged

child defending their actions by saying, ‘Everyone else is

doing it.’ It’s silly, and it’s time for Congress to step in.”

Trent Stamp, former head of Charity Navigator, says,COMPENSATION POLICIES DISCOURAGE SPENDING ON PATIENT SAFETY AND HOSPITAL QUALITY.

To determine compensation, follow the leader

Most hospitals include a brief explanation of executive compensation determination process in their IRS Form 990 returns. Based on forms submitted by New York nonprofit hospitals, most base executive compensation primarily on what is paid by comparable hospitals or hospital systems. Hospital boards typically empanel a compensation committee that engages a consultant to perform a study of executive compensation at comparable hospitals. CEO compensation is then often targeted at the 50th percentile, which is construed to satisfy the IRS’s “rebuttable presumption of reasonableness” test for nonprofit executive compensation.

In addition to perpetuating unjustifiably high compensation, this herd mentality helps to explain why compensation48 can remain very high despite poor performance on safety and quality indicators.

A number of hospital compensation policies cited hospital financial results as a determinant.49 In fact, among the 70 percent of nonprofit hospitals that paid executives a bonus/incentive in 2012, several explicitly tied it to the generation of a surplus (e.g., Westchester Square, New York Methodist, and New York Hospital Medical Center). Among New York nonprofit hospitals with more than $25 million in revenue, only 13 identified “patient safety,” “hospital quality,” or “customer satisfaction” as factors to be considered, and only in conjunction with financial results.50 There is no way to tease out the degree to which an improvement in hospital quality or safety could lead, if at all, to a bonus or incentive payment.

Moreover, this strong emphasis on financial performance implicitly discourages investments that would improve medical outcomes. Because they concomitantly increase expenses as they reduce revenue, investments that improve patient safety could cost a CEO his or her bonus and possibly also result in less base compensation.

The inherent financial disincentive to improve medical outcomes was explained by a 2013 Journal of the American Medical Association study that analyzed post-surgical records of 34,256 people, of whom 1,820 had one or more avoidable complications, such as blood clots, pneumonia or infected incisions.51 The median length of stay for patients with complications quadrupled to 14 days, and hospital revenue averaged $30,500 more than for patients without complications ($49,400 versus $18,900). As the New York Times reported, “Hospitals make money from their own mistakes because insurers pay them for the longer stays and extra care that patients need to treat surgical complications that could have been prevented.”52

17

HHC’s Harlem Hospital had the third best VBP performance of New York City hospitals and the 15th highest VBP score of New York State hospitals. Harlem Hospital outperformed Strong Memorial and New York-Presbyterian on both the VBP and RRP and did better than NYU Hospitals Center on readmissions. HHC’s Lincoln Hospital outperformed North Shore-Long Island Jewish on both the VBP and RRP measures and outperformed Mount Sinai Hospital on readmissions. HHC’s Queens Hospital Center outperformed Faxton-St. Luke’s on VBP. HHC’s North Central Hospital outdid Kaleida Health on VBP and NYU Hospitals Center on readmissions.

Furthermore, Leapfrog Group® gave 36 percent (four) of the 11 HHC hospitals an “A” Patient Safety Grade in 2014, compared to 22 percent of all hospitals in New York State. And the 44 percent decline in New York City medical malpractice claim payments between 2003 and 2012 is strong evidence of HHC’s commitment to improving patient safety.55

Nonprofit hospitals are essentially public institutions

Many New York nonprofit hospitals operate like giant for-profit corporations. They provide enormous compensation packages typical of major private corporations and perquisites like first class travel, country club dues and severance payments. As in the private sector, their boards of directors press for ever higher revenue.

But nonprofit hospitals are distinguishable from private for-profit corporations in critical ways. For-profit corporations survive on their earnings in the marketplace. Nonprofit hospitals depend on billions of dollars in public subsidies from public health insurance program revenue and exemptions from local, state and federal taxes. Every nonprofit hospital in New York would declare bankruptcy if these subsidies were eliminated. Private for-profit companies are responsible to investors. Nonprofit hospitals are responsible first and foremost for delivering the highest quality care to the public.

Figure 6: EXECUTIVE DIRECTOR/CEO COMPENSATION HOSPITALS WITH COMPARABLE REVENUE – 2012

$1,800,000

$1,600,000

$1,400,000

$1,200,000

$1,000,000

$800,000

$600,000

$400,000

$200,000

$0

Bellevue Hospital Center (HHC) $687 million

Bronx-Lebanon Hospital $611 million

Metropolitan Hospital Center (HHC) $265.8 million

New York Downtown Hospital $219.7 million


The degree to which the government underwrites nonprofit hospitals essentially renders them public institutions. Therefore, executive compensation should be based on comparisons to executives in public service with equivalent responsibilities, rather than to private executives. A good example is the Executive Director of the Port Authority of New York and New Jersey. He is responsible for airports, tunnels, bridges, the PATH mass transit system, marine terminals, and billions of dollars in capital projects. He also plans for and supervises the Port Authority’s response to natural disasters and would be on the front lines if there were another terrorist attack on New York. For a position with responsibilities at least as complex and demanding as running a New York hospital, he is paid $289,667 and is ineligible for bonuses and performance incentives.56

Service to the public should be compensated fairly, but no one should become a multimillionaire working for a charity at public expense.

Tax exemptions worth billions

Early in the 20th century, tax-exempt status was granted to American hospitals because they were generally operated by religious or philanthropic organizations as charitable institutions to serve the poor. They provided a public benefit financed largely by donations and generated little if any

income. Exemptions were founded on the notion that these institutions would devote the money otherwise paid in taxes to improving the health of their communities.

Hospitals now benefit from three kinds of federal tax breaks: from capital taxes on income and property; in bond financing (which also frees up nonprofit hospital endowments to earn tax-free income); and deductibility of charitable contributions. They additionally benefit from exemptions on state income tax, sales tax and local property tax.

The foregone revenue from such exemptions is enormous. A 2012 study by the California Nurses Association, Benefitting from Charity Care: California Not-for-Profit Hospitals, found that California’s 196 not-for-profit hospitals received $3.271 billion in government subsidies and other benefits from tax-exempt status in 2010.57 This included $370 million in foregone property taxes, $701 million in foregone sales taxes, $1.6 billion in foregone federal income taxes on net income, $252 million in state income taxes on net income and $34.8 million from tax-exempt bond financing.

While differences in New York’s state and local tax structures and population size may change the calculus, tax-exempt status conservatively saves New York nonprofit hospitals more than one billion dollars a year.

Nonprofit hospitals depend on Medicare and Medicaid—yet pay executives millions

The dependence of New York nonprofit hospitals on public health insurance programs is evidenced by New York State Department of Health (DOH) data showing that 49 percent of their inpatient discharges were covered by Medicare or Medicaid in 2011 (the most recent year for which data was available). DOH reported that Medicare and Medicaid accounted for at least two-thirds of inpatient discharges at one out of six hospitals.58

In addition, audited financial statements indicate that Medicare and Medicaid accounted for at least half of hospital income from medical service billings (net patient service revenue)59 at well over half of the hospitals/ healthcare systems reporting in 2012. The growing number of New Yorkers covered by Medicaid since enactment of the Affordable Care Act has made nonprofit hospitals even more dependent on taxpayer-funded health insurance.

Table 3: NYC HEALTH AND HOSPITALS CORPORATION VALUE BASED PURCHASING (VBP) AND READMISSIONS REDUCTION PROGRAM (RRP) REIMBURSEMENT ADJUSTMENTS FOR FY 2015.

Hospital

Net VBP adjustment

RRP Penalty

Harlem Hospital 0.48% -0.12%

North Central Bronx Hospital 0.16% -0.53%

Bellevue Hospital Center 0.07% -0.52%

Lincoln Hospital 0.02% -0.48%

Metropolitan Hospital -0.27% -0.30%

Kings County Hospital -0.22% -0.39%

Queens Hospital 0.18% -0.85%

Jacobi Medical Center -0.41% -0.27%

Elmhurst Hospital Center -0.33% -0.73%

Woodhull Hospital -0.23% -1.06%

Coney Island Hospital -0.02% -1.49%

HHC AVERAGE -0.05% -0.61%

19

Figure 7 shows the share of net patient service revenue generated by Medicare and Medicaid at selected hospitals with high CEO compensation. Wyckoff Heights Medical Center, which was nearly entirely dependent on Medicaid and Medicare reimbursements, paid its CEO nearly $765,000 and provided $650,000 in severance to two executives, even as the hospital was being bailed out financially by the State of New York.60

ADVERTISING AND LOBBYING EXPENDITURES

Advertising

“Amazing things are happening here,” proclaim full page advertisements for New York-Presbyterian Hospital. In their ads, Kaleida Health says, “Taking care of you is what we do.” On television, radio, newspapers and social media, Memorial Sloan Kettering Cancer Center reassures with the tagline “More Science, Less Fear.” (See sample advertisements in Appendix B.)

New York hospitals reported spending $120 million on advertising in 2012. Twenty hospitals each spent more than $1 million, with New York-Presbyterian topping the list at $23 million, or $33.95 per certified bed per day. NYU Hospitals Center was next, spending $13.1 million, and the Hospital for Special Surgery was third, with $8.0 million in ad spending.61 Some community hospitals also spent heavily on advertising in relation to their small size and revenue. For example, the 216-bed Arnot Ogden Medical Center spent $939,754.

Hospital advertising is largely wasteful and needless. Few medical consumers are in a position to shop for a hospital and, even if they were, advertising would be a poor use of public resources.

• Hospital patients rarely choose their facility. Most inpatients are treated at the hospital where their physicians have admitting privileges. To choose an alternative would require selecting a different physician first. Emergency patients are generally brought to the hospital nearest them and will typically be admitted there if longer treatment is necessary.

Figure 7: MEDICARE/MEDICAID SHARE OF NET PATIENT SERVICE REVENUE AT SELECTED HOSPITALS – 2012

Wyckoff Heights Medical Center

Vassar Brothers Medical Center

Unity Hospital Rochester

Sisters of Charity

Rochester General Hospital

North Shore-LIJ Health System

New York-Presbyterian Hospital

New York Methodist Hospital

Mercy Hospital

Maimonides Medical Center

Lutheran Medical Center

Kenmore Mercy Hospital

Kaleida Health

Interfaith Medical Center

Champlain Valley Physicians Hospital

Catholic Health System of Long Island

88%

52%

64%

88%

60%

50%

76%

76%

54%

59%

55%

50 %

57%

51%

51%

64%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%


• Few medical consumers can assess hospital advertising. How would a prospective inpatient confirm the claim that a hospital has “the best open heart surgery”?

• Hospital ads rarely educate. Hospital ads featuring patients who talk about amazing recoveries and beating cancer may inspire, but do not inform.

• Hospital advertising sometimes exaggerates. Winthrop University Hospital touts its “knife-less surgery” as “the biggest advance in prostate cancer treatment in over a decade.” (See Winthrop ad at Appendix B.) Says who? A professor of urology and urologic oncologist writing in Forbes Magazine gave this ad an “F,” terming it, “one of the most egregious examples of poor copy and obvious deceptive statements.”62

• The target audience for hospital advertising is often physicians. Paul Levy, President and CEO of Beth Israel Deaconess Medical Center in Boston, forthrightly stated that hospitals advertise “to respond to pressure from your doctors and show them that you support their programs.”63

Hospital advertising is also counterproductive:

• Demand for hospital care is inelastic, with a fixed pool of potential patients. Unlike advertising for consumer goods, hospital advertising cannot persuade otherwise healthy people to purchase care that they do not need. Therefore, if advertising is effective it merely siphons patients from other hospitals, largely at public expense.

• Hospital advertising begets more hospital advertising and fuels the medical arms race. When a hospital advertises its cancer center or cardiac surgery program, its competitors are compelled to advertise theirs, lest they lose market share. Likewise, when one hospital advertises new, multi-million dollar state-of-the art diagnostic or treatment equipment, other hospitals are compelled to purchase it as well to remain competitive. As Atlantic Magazine recently put it:

Why are so many hospitals eagerly acquiring and aggressively marketing such equipment? The rationale behind their proliferation lies less in medical evidence than in marketing campaigns, where such sophisticated pieces of equipment seem to define the “state-of-the-art.” 64

No public purpose undergirds any of these rationales and, therefore, no basis exists for public monies to underwrite multi-million dollar advertising campaigns.

SPENDING ON THE LATEST AND GREATEST STATE-OF-THE ART EQUIPMENT

Hospitals commonly tout purchases of high-tech diagnostic and treatment equipment in their advertising. This equipment comes with a high price tag, but medical outcomes may be no better than with less costly equipment and procedures.

For example, a number of New York hospitals purchased da Vinci robotic surgery systems costing at least $1.8 million. The upfront cost is about ten times the price of a high-end laparoscope, yet HealthLine News recently reported that “[f]ifteen years into the use of the da Vinci system, evidence that it trumps other methods is lacking.”* In 2013, the president of the American Congress of Obstetricians and Gynecologists, Dr. James T Breeden cautioned against the use of robotic surgery in hysterectomies:

Adding this expensive technology for routine surgical care does not improve patient outcomes. Consequently, there is no good data proving that robotic hysterectomy is even as good as—let alone better—than existing, and far less costly, minimally invasive alternatives.**

General surgeons have disputed the value of robotic surgery for cholecystectomy (gall bladder removal), and studies have shown minimal benefit in length-of-stay reduction over the non-robotic laparoscopic alternative.*** Moreover, with annual maintenance costing about $125,000, this equipment represents an ongoing drain on stretched hospital operating budgets and another diversion of public funds that could otherwise be used to improve hospital quality and patient safety.

* Cameron Scott, “Is da Vinci Robotic Surgery a Revolution or a Ripoff?” HealthLine News, February 12, 2015.

** American Congress of Obstetricians and Gynecologists, “Statement on Robotic Surgery by ACOG President James T. Breeden, MD,” March 14, 2013.

*** See, Vik Srinivisan, “Three big robotic surgery trends to watch this year,” The Advisory Board Company blogpost, April 9, 2014.

21

Lobbying

Three major hospital associations represent the interests of New York hospitals in Washington and in Albany: the Greater New York Hospital Association (GNYHA), comprising nearly 250 hospitals;65 the Healthcare Association of New York State (HANYS); and the Iroquois Healthcare Alliance, representing 53 hospitals and health systems in 32 upstate counties. The three associations are funded by hospital fees.

They may not run hospitals, but their executives were paid as much as administrators of the largest hospital systems in 2012:

• The top five executives of the Greater New York Hospital Association were compensated a total of $10.924 million.66 From 2011 to 2012, their base compensation and bonus/incentive increased 15 percent, from $6.710 million to $7.740 million.

• The top five executives of the Healthcare Association of New York State (formerly the Hospital Association of NYS) received a combined $2.261 million, including $952,217 for the president and $434,807 for a former executive vice-president.67

• The president of the Iroquois Healthcare Alliance was paid $466,638.68

In addition to underwriting hospital association advocacy, New York nonprofit hospitals reported spending $7.5 million to lobby public officials in 2012. The three largest spenders were New York and Presbyterian Hospital, $822,578; Montefiore Medical Center, $756,468; and NYU Hospitals Center, $404,988. Some hospitals noted that a portion of their lobbying spending went to the Greater New York Hospital Association, which spent $459,000 on lobbying. To be sure, hospitals lobby to preserve and increase Medicaid and Medicare payments, but also against legislation to ensure that hospitals assign adequate numbers of patient care staff.


23

In 2012, more than $300 million would have been available for safe staffing had hospitals paid their executives reasonable, competitive compensation and stopped wasting millions of dollars on advertising. This can happen if hospitals voluntarily reduce unnecessary advertising and New York State enacts:

• The Safe Staffing for Quality Care Act. This proposed New York State legislation would set licensed acute-care nurse-to-patient ratios at reasonable and feasible minimums. Such a statute was supported by the Journal of American Medical Association in its 2002 study documenting the harmful impact of understaffing on patients.

• A cap on hospital executive compensation. A compensation cap of: (i) $450,000 at the hospitals with revenues exceeding $1 billion; (ii) $400,000 at hospitals with revenues between $400 million and $1 billion; and (iii) $350,000 at hospitals with less than $400 million in revenue would be consistent with the compensation of HHC hospital executive directors. These caps would cover the aggregate of base salary and bonus, severance pay, deferred compensation that was earned, and any employer contributions to a retirement plan for executives at hospitals that receive public funds. If such caps had been in place in 2012, nonprofit hospitals would have saved at least $190 million that could have been reinvested in patient care.

• A transparency law requiring disclosure of the factors used to determine all elements of compensation, including base compensation, bonus/incentive compensation, severance payments, contributions to deferred compensation plans, and their weight. Armed with such information, an informed public could press for compensation to be based first and foremost on what counts most: patient safety and hospital quality.

The need for transparency was underscored in 2013 when Kaiser Health News/ABC News tried to investigate hospital executive pay at nonprofit institutions. Reporters asked dozens of hospitals for CEO employment contracts and for information regarding the factors used to determine bonuses or

incentive payments. The investigation was stymied when every hospital but one declined, claiming that disclosure would put them at a competitive disadvantage, and there was no alternative publicly available source for the information, since IRS Form 990 returns are impossibly vague concerning the factors by which hospitals determine compensation.

It is also time for hospitals to call a truce in their advertising competition. Hospital advertising has no value to patients or their care and instead, according to Sidney M. Wolfe, MD, Senior Adviser of the Health Research Group at Public Citizen, “siphon[s] money away from healthcare.”69 It should be scaled back dramatically. If $100 million less had been spent on advertising in 2012, $20 million would have remained to provide the public with important health information and hospital safety and quality could have been significantly improved through the addition of 1,000 full-time direct care workers.

Recommendations


25

1 US Institute of Medicine, Committee on Quality of Health Care in America, Linda T. Kohn, Janet M. Corrigan, and Molla S. Donaldson, (Eds.), (1999).

2 Christopher P. Landrigan, MD, et al., “Temporal Trends in Rates of Patient Harm Resulting from Medical Care,” New England Journal of Medicine 363 (Nov. 25, 2010).

3 Denise Grady, “Study Finds No Progress in Safety at Hospitals,” New York Times (Nov. 24, 2010).

4 Henry Davis, “Kaleida hospital system, Wyoming County hospital penalized for infection rates,” Buffalo News, December 22, 2014. The article reported: “The region’s largest hospital system will pay a penalty over the next year for having high rates of infections or other patient-safety problems as part of a major effort by the federal government to reduce medical errors.”

5 Jordan Rau, “1,700 Hospitals Will Win Quality Bonuses from Medicare, But Most Will Never Collect,” Kaiser Health News, (Jan 22, 2015). Kaiser Health News is a nonprofit national health policy news service.

6 Medicare Payment Advisory Commission, “Report to the Congress: Promoting Greater Efficiency in Medicare,” (Washington, D.C. June 2007).

7 Jordan Rau, “Medicare Fines 2,160 Hospitals in Third Round of Readmissions Penalties,” Kaiser Health News, October 2, 2014.

8 “Best Hospitals” rankings of US News and World Report are not included because the magazine’s ranking system was shown to have little validity in measuring what matters—patient safety. In a 2013 critique published in the Wall Street Journal the authors noted that, “The criteria are unrelated to quality, easily manipulated, and incentivize the wrong choices and behaviors,” and based too little of a hospital’s score on patient safety and too much on reputation surveys of doctors and the use certain `cutting-edge’ technologies that are not necessarily linked to higher quality. See, “Those Hospital Rankings Could Use a Healthy Dose of Skepticism,” Ezekiel J. Emanuel, Chairman of the Department of Medical Ethics and Health Policy at the University of Pennsylvania and Andrew Steinmetz, Senior Research Assistant, Wall Street Journal (July 24, 2013).

9 See 2014 Hospital Safety Score, Leapfrog Group, accessed at http://www.hospitalsafetyscore.org/

10 Truven Health Analytics, Top 100 Hospitals, (22nd Ed., March 2, 2015). Alabama, Arkansas, Connecticut, Kentucky, Nevada, New Jersey and West Virginia and the District of Columbia were included with New York in the lowest segment.

11 US Department of Health and Human Services, Agency for Healthcare Research and Quality, National Healthcare Quality and Disparities Report 2013. 2013 is the most recent year posted. State Snapshots are available at http://nhqrnet.ahrq.gov/inhqrdr/state/select

12 Mary Frost, “Nurses at New York Methodist rally for ‘safe staffing’,” Brooklyn Daily Eagle (Dec. 15, 2014).

13 Linda H. Aiken, PhD, RN; Sean P. Clarke, PhD, RN; Douglas M. Sloane, PhD; Julie Sochalski, PhD, RN; Jeffrey H. Silber, MD, PhD, “Hospital Nurse Staffing and Patient Mortality, Nurse Burnout, and

Job Dissatisfaction,” Journal of the American Medical Association 288 (October 23/30, 2002)

14 L. Unruh, “Licensed nurse staffing and adverse outcomes in hospitals,” Medical Care 41 (2003): 142-52

15 J. Rogowski, D. Staiger, T. Patrick, et al., “Nurse Staffing and NICU Infection Rates,” Journal of American Medical Association Pediatrics 167 (May 2013): 444-50.

16 Beatrice J. Kalisch, PhD, RN, FAAN, “Missed Nursing Care, A Qualitative Study,” Journal of Nursing Care Quality, 21 (Oct-Dec 2006): 306-313.

17 Kronos, “Want to create a safer, more therapeutic environment for staff and patients alike?” (March 2013).

18 K. Frith, E. Anderson, F. Tseng, et al., “Nurse staffing is an important strategy to prevent medication errors in community hospitals,” Nursing Economics 30, (Sep-Oct 2012): 288-294.

19 Jeannie P. Cimiotti, DNSc, RN; Linda H Aiken, PhD; Douglas M Sloane, PhD; Even S Wu, BS, “Nurse staffing, burnout, and healthcare-associated infection,” American Journal of Infection Control 50 (August 2012): 486–490.

20 Aiken, et al., op. cit. Hospital Nurse Staffing and Patient Mortality.” See also, “Increase in nurse numbers linked to better survival rates in ICU,” C. Duffin, Nursing Standard (2014). The study found that increasing RN staffing improved survival rates because nurses spent more time with critically ill patients than other healthcare professionals and were therefore more likely to detect early signs of deterioration.

21 J. Needleman, P Buerhaus, S. Mattke, et al., Nurse-staffing levels and patient outcomes in hospitals. Final report for Health Resources and Services Administration, Harvard School of Public Health, Boston, MA (2001).

22 S.H. Cho, S. Ketefian, V.H. Barkauskas, et al., “The effects of nurse staffing on adverse outcomes, morbidity, mortality, and medical costs,” Nursing Research 52 (Mar-Apr 2003): 71-79.

23 A key employee is defined as one who receives compensation of more than $150,000, is one of the top 20 compensated employees, and either: has responsibilities, powers, or influence over the organization as a whole; manages a discrete activity of the organization that represents 10 percent or more of the organization’s total activities, assets, income, or expenses; or has authority to control 10 percent or more of the organization’s capital expenditures, operating budget, or employee compensation.

24 As recommended by the Nonprofit Coordinating Committee of New York in How to Read the New IRS Form 990.

25 Compensation data was derived from the publicly available IRS Form 990 returns filed for each New York nonprofit hospital. These include 152 acute care general hospitals and the Hospital for Special Surgery, New York Eye & Ear Institute, and Memorial Sloan-Kettering Cancer Center. Job titles are as reported on IRS Form 990. If a title was not identified, the executive’s LinkedIn entry, official biography, or press release was consulted. The number of executives earning compensation in excess of $350,000 and the statewide total of $350 million may be understated because a number of executives with compensation of more than $350,000:

Endnotes


either were (i) not trustees, directors, officers, key employees or among the five highest compensated employees; or (ii) were not construed to be key employees by their employers.

26 To avoid duplication, hospital executives reported by health care systems and individual hospitals in 2012 IRS filings are attributed either to the individual hospital they served, or to the health system if they were not identified as serving an individual hospital. This applies to executives of the North Shore-Long Island Jewish Health System and to Catholic Health System of Long Island. For instance, the CEO of Huntington Hospital is counted as an executive only for Huntington Hospital and is not included among the executives of NS-LIJ Health Care System, although he was included on the NS-LIJ Health Care System IRS Form 990 return.

2012 executive compensation reported by Montefiore Medical Center, New York-Presbyterian Hospital, North Shore University Medical Center-LIJ, NYU Hospitals Center, Catholic Health Services of Long Island, St. Charles Hospital, and Lawrence Hospital Center was increased substantially by nonqualified deferred compensation plan reported income.

27 The individual hospital compensation totals in this table were rounded. $152.8 million is the unrounded total.

28 The CEO of NYU Hospitals Center was also dean of the medical school. His compensation included $800,000 in other reportable compensation and $640,652 in deferred compensation.

29 The CEO of Hudson Valley Hospital Center was paid $67.65/$10,000 counting only base and bonus/incentive compensation.

30 The CEO of Phelps Memorial Hospital was paid $50.97/$10,000 counting only base and bonus/incentive compensation.

31 New York-Presbyterian Hospital’s 2012 IRS Form 990 listed Herbert Pardes as an officer. In 2014, the New York Times reported that he was still employed by the hospital three years subsequent to his retirement. See, Anemona Hartocolis, “At New York-Presbyterian Hospital, Its Ex-C.E.O. Finds Lucrative Work,” New York Times, July 15, 2014.

32 Payments included $361,432 and $311,768 to former executives of Brooklyn Hospital Center, $435,032 to a former officer of Mount Sinai Hospital, and $228,686 to a former CEO of St. Joseph’s Hospital Medical Center in Syracuse.

33 Barbara Benson, “SERPs up! Hospital execs win big,” Crain’s New York Business, March 18, 2012.

34 Hospitals are permitted to offer such plans by Section 457(f) of the Internal Revenue Code and commonly offer such top-hat plans as a tool to recruit desirable candidates. Benefits can be paid as a lump sum or a series of annual payments. Unlike qualified plans, payments under a top hat plan are not vested until the specified “maturity date,” is reached. Therefore, an executive will forfeit his or her rights to payment if service is terminated before vesting. When vested, they are reflected in the executive’s compensation and are taxable as income. (These payments are indicated as “other reportable compensation” in column B (iii) of IRS Form 990, Schedule J. The deferred amount is shown in Column C, retirement and other deferred compensation, of IRS Form 990 Schedule J.) Under a type of top-hat plan known as a supplemental employee retirement plan (SERP), the payment is taxable as income upon vesting, even if it is not distributed until retirement.

The benefits provided can be substantial, especially when added to already high compensation and bonuses. For example, Kaleida Health’s Form 990 reported SERP taxable income for its CEO of $340,834 and COO of $244,535 and Hudson Valley Medical Center reported $250,000 for its president in 2012.

35 Anemona Hartocollis, “At Ailing Brooklyn Hospital, Insider Deals and Lavish Perks,” New York Times (March 25, 2012).

36 New York Methodist Hospital, Wyckoff Heights Medical Center, Southampton Hospital, Olean Genera Hospital provided housing for executives.

37 Personal services were provided by Catholic Health System of Buffalo, New York-Presbyterian Hospital, NYU Hospitals Center, White Plains Hospital and Wyckoff Heights Medical Center.

38 First class travel was provided by New York-Presbyterian for the CEO/President and executive vice presidents for flights longer than four hours when business class was not available. The Hospital for Special Surgery allowed first class on flights longer than five hours if business class was not available.

39 Country club or social club dues were paid by Catholic Health System-Buffalo, Kaleida Health, Lakeside Memorial Hospital, Olean General Hospital, Orange Regional Medical Center, Our Lady of Lourdes Medical Center and Rome Memorial Hospital.

40 Karen E. Joynt, MD, MPH; Sidney T, Le, BA; E. John Orav, PhD; Ashish K. Jha, MD, MPH, “Compensation of Chief Executive Officers at Nonprofit US Hospitals,” JAMA: Internal Med 174 (January 2014): 617-67. The study found “no significant association between performance on process quality, risk-adjusted mortality, or readmission rates and CEO compensation.”

41 New Hampshire Center for Public Policy, Executive Compensation at New Hampshire’s Non-Profit Hospitals (June 2012).

42 The FY 2015 Readmissions Reduction Program penalties are based on patient discharges between July 2010 and June 2013. The FY 2015 Value Based Purchasing Program performance period for four of the six domains was 1/1/2013-12/31/2013 and the baseline period was 1/1/2011/ 12/31/2011. For one domain, the performance period was 10/1/2012 to 6/20/2013 and the baseline period was 10/1/2010 to 6/30/2011. For another domain, the performance period was 5/1/2013 to 12/31/2013 and the baseline period was 5/1/2011 to 12/31/2011. Therefore, management by hospital administrators in 2012 led to the RRP and VBP results measured in 2013 that are the basis for FY 2015 reimbursement adjustments.

43 “How safe is your hospital? Our new ratings find that some are riskier than others,” Consumer Reports, August 2012.

44 Readmissions Reduction Program penalties: “Medicare Fines 2,160 Hospitals in Third Round of Readmissions Penalties,” Kaiser Health News, October 2, 2014.

45 Bonuses of $578,000 were paid to the Beth Israel Medical Center CEO, $52,917 to the Columbia Memorial Hospital CEO, $319,917 to the Good Samaritan Hospital-Suffern CEO, and $175,000 to the president of St. Luke’s-Roosevelt Medical Center.

46 The revenue of Health Alliance-Broadway includes Health Alliance’s Benedictine Hospital. Vassar Brothers Medical Center revenue includes Northern Dutchess Hospital and Putnam Hospital Center.

47 United States Department of Health and Human Services, Office of the Inspector General, American Health Lawyers Association, Corporate Responsibility and Health Care Quality: A Resource for Health Care Boards of Directors (Sept. 2007).

48 As Trent Stamp was quoted by Ian Wilhelm in “Executive Compensation at Charities Attracts New Scrutiny,” The Chronicle of Philanthropy, February 18, 2009.

49 These included Catholic Health System-Buffalo, Unity Hospital of Rochester and Faxton St. Luke’s Hospital (as reported in hospital’s 2011 Form 990; Faxton-St. Luke’s Form 990 Schedule

27

J is missing from their 2012 return). South Nassau Communities Hospital and Winthrop University Hospital reported that “financial or similar goals” were considered in setting compensation, and at St. Elizabeth’s Medical Center incentive payments depended on “the financial performance of the medical center.”

50 Bronx-Lebanon Hospital linked the CEO bonus to the hospital’s “operating profit, control of growth in payroll and medical quality performance.” Mount Sinai Hospital used JCAHO Hospital Core Measures, patient satisfaction scores, and “other organizational goals such as length of stay initiatives” but also “net earnings” as one of the “metrics utilized in the bonus computation.” Montefiore Medical Center stated that the bonus depended on financial performance as well as “performance goals which include quality of care, patient satisfaction, community benefit.” Schedule J, Form 990 2012 for all hospitals.

Some hospitals provided no written statement on how they determined executive bonuses or incentive payments. Others were vague. For example, North Shore University-LIJ Health System, disclosed only that they were based on “many performance based factors.”

51 Sunil Eappen, MD; Bennett H. Lane, MS; Barry Rosenberg, MD, MBA; Stuart A. Lipsitz, ScD; David Sadoff, BA; Dave Matheson, JD, MBA; William R. Berry, MD, MPA, MPH; Mark Lester, MD, MBA; Atul A. Gawande, MD, MPH, “Relationship Between Occurrence of Surgical Complications and Hospital Finances,” Journal of the American Medical Association 309 (April 17, 2013): 1599-1606.

52 Denise Grady, “Hospitals Profit from Surgical Errors, Study Finds,” New York Times, April 16, 2013.

53 See, SeeThroughNY public payrolls. In addition see, “City hospital system on life support… but HHC boss is highest-paid Mayor Bloomberg aide,” Kathleen Lucadamo, New York Daily News, February 28, 2011. The article explained that $351,062 was the annual compensation at that time for the HHC chief under a three-year contract approved in January 2010, with additional compensation for a car. His successor took office in 2014 and is receiving $393,000 plus a car and driver, as reported in the New York Daily News, February 2, 2014.

54 HHC salaries and revenue were reported in Crain’s HealthPulse Extra, February 3, 2015, which also reported nonprofit executive compensation in 2012. To ensure comparability between the HHC and nonprofit hospitals, the compensation reflected in Figure 6 for nonprofit CEOs counts only their base salary and bonus/incentive payments.

55 See, generally, Office of the New York City Comptroller, Annual Claims Reports. The most recent report posted at the Comptroller’s website is for FY 2012. The Comptroller’s report said that, “HHC has been pro-active in the areas of risk and litigation management with impressive results.”

56 As reported by J. Elias O’Neil, “Virginia port CEO compensation among the highest,” Portsmouth Daily Press, October 12, 2014.

57 Institute for Health and Socio-Economic Policy, Benefitting from Charity Care: California Not-for-Profit Hospitals, August 15, 2012. (The Institute is the research arm of the California Nurses Association/National Nurses United.)

58 Derived from New York State Health Department data on the percentage of inpatients covered by different payers. Another 0.5% of inpatient discharges were covered by CHAMPUS (Civilian Health and Medical Program of the Uniformed Services).

59 Net patient service revenue is the income collected by a hospital after billing for medical services it provided.

60 Anemona Hartocollis, o.p.c.t.

61 The 20 hospitals that spent the most on advertising in 2012, according to IRS Form 990 returns were: New York-Presbyterian Hospital, $22.8 million; NYU Hospitals Center, $13.1 million; Hospital for Special Surgery, $8.0 million; Winthrop University Hospital, $5.0 million; Memorial Sloan-Kettering Cancer Center, $4.6 million; Kaleida Health, $3.7 million; Mount Sinai Hospital, $4.0 million; Maimonides Medical Center, $3.1 million; Catholic Health System-Buffalo, $3 million; St. Peter’s Hospital, $2.5 million; Ellis Hospital, $2.2 million; St. Joseph’s Hospital (Syracuse) $2 million; St. Luke’s-Roosevelt Medical Center, $2 million; New York Hospital Queens, $1.9 million; Rochester General Hospital, $1.7 million; St. Francis Hospital (Roslyn), $1.7 million; Montefiore Medical Center $1.4 million; Our Lady of Lourdes Memorial Hospital, $1.3 million; Bon Secours Health System, $1.2 million; Crouse Health System, $1.2 million; and Unity Health of Rochester, $1.2 million. Advertising totals reflected here are net of “fundraising expenses” reported under “advertising and promotion” in Section IX of IRS Form 990.

62 Benjamin Davies, MD, “Prostate Cancer Advertising: Lies and the Damn Lies (Part 1),” Forbes, November 10, 2014, regarding the hospital’s CyberKnife system, a robotic radiosurgery system used to treat tumors and other medical conditions. Doctor Davies wrote: “CyberKnife (or Stereotactic body radiotherapy—SBRT) has not even been tested in Phase 3 studies for prostate cancer. There is no outcome data at all that has more than 5 years of published data. In prostate cancer you need a minimum of 15-20 years to even begin to see any survival effect. The real advances in prostate cancer care are in new medications that have advanced overall survival in metastatic disease (enzalutamide/abiraterone).” Accessed at http://www.forbes.com/sites/benjamindavies/2014/11/10/prostate-cancer-advertising-lies-and-the-damn-lies-part-1/

63 As reported in Health Beat, August 14, 2008. Dr. Levy also said, “There is no evidence that ads work in creating business, but we need to keep our doctors happy.” Accessed at http://www.healthbeatblog.org /2008/08/hospital-ads-th.html

64 Richard Gunderman, “Why Are Hospital CEOs Paid So Well?,” The Atlantic, October 15, 2013.

65 GNYHA members are primarily in New York but some members are also in New Jersey and Connecticut.

66 Their 2012 compensation consisted of $3,609,467 in base salary, $4,131,443 in bonus/incentive, $2,178,518 in other reportable compensation and $1,005,396 in retirement/deferred compensation. For the president and the executive vice president “other” compensation included shares of common stock in Happitique, Inc. In 2011, combined compensation of these same individuals consisted of $3,543,730 in base salary, $3,166,561 in bonus/incentive, $808,604 in other reportable, and $1,300,687 in retirement/deferred compensation.

67 In addition to base compensation and bonus/incentive the president’s compensation included $72,962 of other reportable compensation and $81,406 of retirement and other deferred compensation. In addition to base compensation and bonus/incentive, the vice-president’s compensation included $1,881 of other reportable compensation and $16,648 of retirement and other deferred compensation.

68 $365,592 base compensation, $93,546 bonus/incentive, $17,500 deferred compensation.

69 As reported in Jim Doyle, “Ads proliferate across St. Louis as hospitals push services, name recognition,” St. Louis Post-Dispatch, November 20, 2012.


Appendix ATable A1: VALUE BASED PURCHASING (VBP) & READMISSIONS REDUCTION PROGRAM (RRP) PERFORMANCE OF NEW YORK NONPROFIT HOSPITALS IN BOTTOM QUARTILE WITH REVENUES EXCEEDING $25 MILLION – FY 2015

Hospital County Net VBP Adjustment RRP penalty

Beth Israel Medical Center New York -0.29% -1.79%

Brookhaven Memorial Hospital Medical Center Suffolk -0.41% -1.56%

Columbia Memorial Hospital Columbia -0.35% -1.39%

Glen Cove Hospital Nassau -0.53% -1.43%

Good Samaritan-Suffern Rockland -0.45% -1.33%

Health Alliance Hospital Broadway Campus Ulster -0.44% -1.44%

Jamaica Hospital Medical Center Queens -0.40% -1.33%

Mary Imogene Bassett Hospital Otsego -0.47% -0.91%

New York Methodist Hospital Kings -0.39% -1.07%

Rome Memorial Hospital Oneida -0.47% -0.99%

St. Luke’s Cornwall Hospital Orange -0.45% -1.13%

St. Luke’s-Roosevelt Hospital New York -0.25% -1.23%

Wyckoff Heights Medical Center Kings -0.29% -1.50%

Table A2: VALUE BASED PURCHASING AND READMISSIONS REDUCTION PERFORMANCE OF NEW YORK NONPROFIT HOSPITALS IN TOP QUARTILE WITH REVENUES EXCEEDING $25 MILLION – FY 2015

Hospital County Net VBP Adjustment RRP penalty

Claxton-Hepburn St. Lawrence 0.85% -0.09%

Clifton Springs Hospital and Clinic Ontario 0.63% -0.15%

Community Memorial Hospital Madison 1.47% -0.05%

Geneva General Hospital Ontario 0.26% -0.02%

Highland Hospital Monroe 0.42% -0.25%

Jones Memorial Hospital Allegany 0.93% -0.19%

Northern Dutchess Hospital Dutchess 0.39% -0.03%

Oneida Healthcare Center Madison 0.25% -0.17%

Samaritan Medical Center Jefferson 0.62% -0.17%

Sisters of Charity Hospital Erie 0.48% -0.10%

St. Francis Hospital, Roslyn Nassau 0.37% 0.00%

St. Peter’s Hospital Albany 0.40% -0.03%

TLC Health Network Cattaraugus 0.31% -0.07%

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Appendix B


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Documents

Paying for What Doesn't Count: How exorbitant executive compensation and frivolous advertising hurts New York hospital patients