Wednesday, February 15, 2023

Treasurer Folwell Hosts Press Conference Exposing N.C. Nonprofit Hospitals’ Extravagant Executive Pay

Groundbreaking Report Concludes Nonprofit Hospitals Paid Top Executives Over $1.75 Billion in the Past Decade, Doubling CEO Compensation Faster than Previously Thought
Raleigh, NC
Feb 15, 2023

SEE REPORT: Hospital Executive Pay

View Press Conference:

(Raleigh, N.C.) — Nonprofit hospital executives enriched themselves while fueling a crisis of health care affordability in North Carolina. A new analysis of hospital data finds that nonprofit hospital CEOs doubled their paychecks in less than five years — a fraction of the time previously thought. Existing research had gravely underestimated the growth of wage inequity across nonprofit hospitals. 

State Treasurer Dale R. Folwell, CPA, invited researchers from the North Carolina State Health Plan for Teachers and State Employees, Johns Hopkins University Bloomberg School of Public Health, and Rice University’s Baker Institute for Public Policy to study executive compensation across North Carolina’s nine largest hospital systems, including Atrium, Mission, Novant, UNC, Vidant, Duke, Cone, WakeMed and Wake Forest Baptist Health, as well as the Midwest system Advocate Aurora Health that merged with Atrium Health.  

“This is the biggest transfer of wealth in our generation, and it’s being financed disproportionately on the backs of sick, low- and fixed-income people,” said Treasurer Folwell. “These nonprofit hospital executives have lost their mission. They are supposed to make people better, not make themselves richer.”

When North Carolina hospitals paid $1.75 billion to their top executives, chief executive officers (CEO) captured almost 20% of that pay from 2010 to 2021. Researchers also found troubling trends in hospital executive compensation during the pandemic. Frontline workers gained national recognition for their work caring for patients, but nurse and physician wages have risen far more slowly than executive pay over the past decade. Despite pleading poverty and taking $1.5 billion in taxpayer-funded COVID relief, the majority of hospital top executives did not cut their own paychecks in 2020.

“Doctors and nurses risked their lives during the pandemic,” Treasurer Folwell said. “Most hospital executives didn’t even cut their own pay. Instead, these systems grabbed millions of taxpayer-funded COVID relief dollars that were meant for struggling hospitals — and then gave their executives a pay raise.”

While hospital executives enjoyed huge raises, workers’ wages have remained largely flat over the past decade. Rising health care costs are eroding families’ upward mobility. The average worker now loses 20% of a paycheck to health care costs, and one in five North Carolinians is in debt collections for medical bills. State employees must work one week out of every month just to pay the family premium. 

“This report is a wake-up call to anyone who sits on the board of a nonprofit hospital,” said Dr. Vivian Ho, James A. Baker III Institute Chair in Health Economics at Rice University. “Executives are being handsomely rewarded for earning high profits and burdening North Carolinians with medical debt, rather than guaranteeing affordable care to hard-working families that form the backbone of the economy.”

Nonprofit hospital executives should recommit to their charitable mission and strengthen their transparency. According to peer-reviewed reports commissioned by the Treasurer, nonprofit hospitals enjoyed more than $1.8 billion in tax breaks in 2020, but the majority of hospitals failed to justify their tax breaks by providing an equivalent level of charity care. Failures in existing law have weakened transparency and accountability, especially across Atrium and UNC Health — two of North Carolina’s largest hospital systems.  

“Nonprofit hospitals are required to justify their community benefits spending at the tax level,” said Dr. Hossein Zare, assistant scientist at the Johns Hopkins Bloomberg School of Public Health. “Lack of transparency on definitions and spending creates a wide variation across nonprofit hospitals in the amount of tax benefit and charity care/community benefits. A new standard is needed.” 

“Nonprofit hospitals receive substantial taxpayer subsidies. In return, they must advance charitable missions,” said Dr. Ge Bai, professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health and professor of accounting at the Carey Business School. “Executive compensation is an important lens for the public to understand governance within these hospitals.” 

Key Takeaways:

North Carolina's nine largest hospital systems paid highly compensated executives more than $1.75 billion from 2010 to 2021.   

  • Almost 20% of that compensation was captured by a handful of hospital CEOs, who collectively took home $308.8 million over 12 years.  

  • This is likely a significant underestimate because the public cannot access the tax filings that track how much publicly owned hospitals paid their top executives. A loophole in current law hides these tax filings for more than three in 10 nonprofit hospitals in North Carolina, including Atrium and UNC Health.   

  • UNC Health did not answer a public records request for executive compensation data until Feb. 13, two days before this report's publication and almost three months after UNC received the request. Researchers therefore could not analyze UNC Health’s systemwide data. They instead relied on partial overlapping data from UNC REX Hospital.     

  • Furthermore, this report does not track the compensation hospital CEOs can draw from outside organizations. For example, UNC Health CEO William Roper collected $5.5 million from sitting on the boards of outside organizations that did business with the state. 

In North Carolina most nonprofit hospital system CEOs doubled their paychecks in just five years — half the time previously thought.   

  • Previous national research found that hospital CEO compensation escalated by 93% from 2005 to 2015.   

  • This prior research did not account for personnel turnover, however, which inadvertently overlooked an explosion in hospital CEO pay as senior executives retired and were replaced by individuals whose lower pay scale rapidly surged to levels matching or exceeding their predecessors’ compensation.  

  • Atrium Health CEO Gene Woods grew his compensation by 473% over six years, and Mission Health CEO Ronald Paulus’ paycheck soared 726% in less than a decade before he presided over the sale of the hospital to a for-profit corporation.   

  • Family medicine physicians’ wages rose 22.7% from 2010 to 2019, while registered nurses’ wages rose only 14.8% in that time.  

  • Unlike North Carolina hospital systems, the average CEO pay among most nonprofits hovered between $100,000 to $200,000 in 2018. Even the president of the American Red Cross earned a total of $750,823 in 2020.  

The pandemic did not interfere with pay raises for most nonprofit hospital system executives in 2020.   

  • Average CEO compensation was $3.4 million in 2020 across the largest nonprofit hospital systems in North Carolina. Together, the top 40 hospital executives collected a total of $77.2 million in 2020 — enough to pay the average salaries of 1,412 teachers in North Carolina.  

  • Out of 175 executives across eight systems, only 35 executives took pay reductions in 2020 that were not triggered by departures.  

  • Only Duke, Novant and Cone Health cut their CEO compensation, by 2%, 1.7% and 6.5%, respectively, in 2020 — and all earned higher wages by 2021, except for the CEO of Duke Health. 

Without legislative action, taxpayers cannot see whether nonprofit hospitals prioritize patient safety or financial performance in their executive pay structure. 

  • North Carolina law allows nonprofit and publicly-owned hospitals to conceal executive contracts from the public.   

  • Experts fear that hospital CEOs are financially incentivized to cut costs and boost revenue in ways that threaten patient safety and hurt affordability.   

  • North Carolina’s taxpayers gave up $1.8 billion for nonprofit hospitals’ tax breaks in 2020 — sacrificing resources that could have supported public education, public roads, public works and public safety. The majority of nonprofit hospitals failed to justify those tax exemptions with commensurate charity care spending, according to previous peer-reviewed reports from the State Health Plan.