Hospitals reward CEOs for profit over quality care

by | Jul 2, 2013

Like hospital leaders everywhere, the people running Valley Medical Center in Renton, WA, talk frequently about the need to control soaring medical costs. Experts believe that’s a good prescription for the entire U.S. health industry, which costs the economy far more than systems in other developed countries, delivers mediocre results and is widely seen as unsustainable at its current growth rate.But even as Valley officials talk about change, they’re paying hospital CEO Richard Roodman tens of thousands of dollars in bonuses for driving the kind of profits and expansion many say are no longer affordable for patients, employers and taxpayers.

Across the nation, boards at nonprofit hospitals such as Valley are often paying bosses much more for boosting volume rather than delivering value, according to interviews with compensation consultants and an examination of CEOs’ employment contracts and bonus packages. Such deals undermine measures in the 2010 health law that aim to cut unnecessary treatment and control costs, say economists and policy authorities.

“Boards of trustees in health care are oriented around top-line, revenue goals,” said Dr. Donald Berwick, a longtime reform advocate who ran Medicare and Medicaid for President Obama until December 2011. “They celebrate the CEO when the hospital is full instead of rewarding business models that improve patients’ care.”

As public and private budget pressures prompt sharper questions about how the system got so bloated, here is one answer: Hospital CEOs are paid to make it that way.

“What you’re seeing is incentive plans that look pretty similar to what they looked like five years ago or 10 years ago,” said James Guthrie, a hospital-compensation consultant for Integrated Healthcare Strategies. “They’re changing, but they’re changing fairly slowly.”

Richard Umbdenstock, CEO of the American Hospital Association, defended financial goals in executive bonus packages. And while targets for revenue and admissions growth reflect a system that has traditionally rewarded volume, CEO incentive goals “are changing,” he added. “They are moving toward a greater balance toward quality and safety, patient satisfaction, employee satisfaction and finances.”

Growth has been the theme at Valley Medical Center almost since CEO Roodman took over in 1983. Valley, a 300-bed community hospital, gets a cut of local property taxes. In a story matched at hospitals across the country, the institution has repeatedly added space, programs, amenities and technology once reserved for top teaching hospitals to become Renton’s second-biggest employer, after Boeing.

Patient revenue doubled over the decade ending in 2012, to $406 million, as Valley added a new surgery center; a $115 million tower that included an expanded emergency department and a joint and spine center; a birthing center with whirlpool tubs and reclining chairs for dads; and a “soothing, light-filled lobby” with pyramid skylights and waterfalls.

In 2012 Roodman’s pay was $1.2 million. That included a $213,000 bonus, about a third of which was related to financial goals and expansion. He also received a retention bonus of about $274,000 during the year. Over several years his pay repeatedly included rewards triggered by specific achievements in building the hospital’s business. For example, when Valley exceeded profit goals for three consecutive years, Roodman earned a bonus each time. When patient volume increased at the hospital’s primary and specialty-care clinics in 2009, he got a bonus. When urgent-care center visits grew the same year, he received another bonus.

While reformers focus on changing the “pay per procedure” incentives that induce physicians to perform excessive treatment, few seem to have noticed that incentives for the bosses like Roodman who run the hospitals and supervise the doctors point in the same direction. Because hospital officials feel obligated to put expensive equipment to use, many analysts believe the mere existence of new programs increases treatment and spending whether they are needed or not.

Roodman’s recent incentives, like those of many CEOs, included categories for quality, patient satisfaction and charity care in addition to expansion and financial targets.”

Hospitals, however, tend to see satisfaction and quality scores in the same light as concierge service and luxury sheets – another way to attract patients and boost revenue. A few years ago, Integrated Healthcare Strategies asked hospitals why they pay executives quality and safety bonuses. “Way to grow service volumes” through publicity was one of the top reasons, along with “it’s the right thing to do.”

Valley’s quality scores as compiled by federal regulators and the Washington Hospital Association are similar to those of other hospitals in the area. It got a “B” in the latest safety ratings by the Leapfrog Group, an employer consortium, compared with grades of “C” and “B” in reports last year. It was one of the most-penalized hospitals in the state (eighth out of 48) for high readmission rates of Medicare patients.

Valley and its new UW Medicine partner are trying to improve. Roodman’s 2013 quality goals – reducing hospital-acquired infections and achieving other safety objectives – are “state of the art” and a big advance over his previous quality targets, said Dr. David Nash, the dean of Thomas Jefferson University’s School of Population Health in Philadelphia who also advises hospitals on incentive design.

But they still account for only 15 percent of Roodman’s potential 2013 bonus. Financial goals, construction and starting or expanding half a dozen programs such as neurosciences and a sports and spine clinic, on the other hand, make up a much bigger portion.

Compensation specialists expect hospital boards to increase quality expectations and de-emphasize growth and the bottom line in future CEO bonus plans, especially as insurers and Medicare reward quality and efficiency more highly. But they predict it will take years. (Kaiser Health News) Visit the Seattle Times for the story.

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