Ethical Dilemmas Facing Non-Profit Hospital Ceo Compensation

respectable Dilemmas Facing Non-Profit hospital chief operating officer fee Ethical Dilemmas Facing Non-Profit Hospital chief administrator officer Compensation Executive Summary This try kayoed deals with the unethical prevalence of excessive pay packages granted to nonprofit organization infirmary decision makers. noncommercials be highly Byzantine nerves and ar vital to the clubs in which they serves. therefore, it is essential for these organizations to appoint highly motivated individuals knowledgeable of the health deal sedulousness and capable of managing and leading(p) a hospital during a issue recession era health reform is changing the culture of the US health wish system.However, many nonprofit organizations tax-exempt viewes should be rescinded for allocating leftover resources to hospital executive directors in the form of exorbitant salaries, benefits, and other(a) incentives. It is these fibrous salaries and benefits that argon restric ting hospitals from carrying forth their priority mission as domain charities. These chief executive officers exorbitant requital packages be further twist the hospitals ability to yield into account a social benefit, vestige that these tax-exempt organizations are acting unethically, in that financial gain is pickings precedents over social responsibilities.Ethical Dilemmas Facing Non-Profit Hospital CEO Compensation Communities crossways the nation give up seen the coarse effects of the delicate financial status of our country and the effects it has on health administer organization within their community. In a fourth dimension effortful for nonprofit healthcare organizations to carry at a profit, many organizations are left with no choice nonwithstanding to cut essential departments, programs, and employees, leaving many patients that have relied on these organizations, out in the cold.Recently, because of these financial issues, the ethical principles of nonprof its regarding CEO compensation have been chthonian heavy scrutiny by both the public, and the Internal Revenue attend to for excessive salaries and benefits. Nonprofit hospitals are organization that are exempt from salaried income, sales, and property taxes, and receive likeable donations and caboodleive government subsidies with the redeing that these subsidies are issued in narrate for these hospitals to fulfill their duty as a community service and benefit. riotously high compensation for hospital executives is an unethical epidemic set just about many organizations, particularly monstrous and urban hospitals, that is restricting hospitals from carrying out its duties because of superfluous financial constraint. Salaries for nonprofit hospital executives should be capped as they posit and oft eras restrict hospitals to better fulfill their charitable, social missions. Healthcare is start to mirror incarnate businesses with many hospital CEO salaries free-enterpris e(a)ly rivaling those of corporate executives.However, organizational closings and missions are nearly completely diametrical. Healthcare organizations are unconnected other corporations in that corporations are in existence with the ultimate address of financial gain. Nonprofit hospitals carry missions such as to provide high-quality, cost-efficient healthcare services to all patients regardless of ability to pay,to offer training, to direct clinical research, to serve the community as a public health advocate, and to provide admit and services which respond to the areas health care postulate through health education, health promotion, and access to care.Hospitals have the ethical responsibility to pursue a social mission, including providing un equilibrate care and community outreach, much thanover when their executives boast salaries with staggering seven insure salaries, the charitable work of the organization becomes obnubilated by an unmistakable pursuit of financi al gain. The IRS reported that the honest hospital CEO received $490,000 in total compensation in 2006, and conduce executives at twenty of the macroscopicalr hospitals in the nation raked in an average of $1. 4 one million million a year, whereas uncompensated and free care expenditures as a partage of hospital revenues averaged about 7 pct (Terry, K. 009). There is a large margin in executive compensation that is certified on features such as geographical location and size. gibe to the humanity Navigator, in 2008, the median CEO salary in the Northeast was $351,000 for large hospitals, and $120,000 for small hospitals. In the Mountain West region of the US, the median salaries for a large hospital was $194,374, and barely $80,790 for small hospitals (Charity Navigator 2010) Seven figure salaries are not a normal occurrence among hospital and health system executives.However, gibe to the Chronicle of Philanthropy, which does an annual national surveil of nonprofit salari es, prove that the five top- give nonprofit chief executives in 2003 all worked for hospitals. On top of these exaggerated salaries are the attractive benefits such as tri unlessees, deferred income, privacy plans, country club memberships, and countless other perks that are attracting the wrong descriptor of leaders to these organizations. Hospitals must(prenominal) provide their social responsibility to the community onwards spending outrageous salaries for chief executives.It is an unethical practice to pay executive teams more than the total spending on the necessitous care of the community. For example, the survey identified 17 hospitals in California where the total compensation to CEOs alone exceeded the total cost of charity care of their individual organizations. These excessive salaries could have easily paid hospital bills for un insured individuals, or could have been used to fund educational programs for the community, provide free immunizations to the public, an d or many other beneficial alternatives that could have had a big intrusion on the communitys health (Mahar, M. 011). It is unjustified for executives to be compensated in amounts greater than $1 million. By capping executive salary at this figure, bullion can be reprioritized into community programs such as parenting support programs, screening programs, women, children and infant development clinics, which can be useed to provide nutrition and educational information for new mothers, and social work programs that could process individuals and families that face medical related problems, and those who need emotional support.Instead, greed has contend a big factor in CEO initiatives. It has not been of sublime occurrence for Chief executives to siphon off millions of tax dollars that should be qualifying towards access and quality care. It is unethical for executives at nonprofit organizations to exploit their federally granted nontaxable status to enrich themselves (Swiatek, J. , 2005) Attorney General Michael A. Delaney of unused Hamps train announced in May of 2010 that he would review the compensation of CEOs at more than twenty nonprofit hospitals throughout the asseverate.In a report that reviewed the proposed merger of two health systems, Mr. Delaney expressed his concern about the pay for Alyson Pitman Giles, President CEO of Catholic Medical Center, who acquire $1. 4 million in 2009. He stated, Nonprofit leaders must be advised that they are the stewards of the charitable assets they oversee, and those assets are held in invest for charitable purposes, not individual gain, (Gose, B. , 2010)Non-profit hospitals must provide a minimum of charity care in order to receive its tax-free surname and its federal grants. However, many hospitals, although they meet the minimum, make no effort to go above and beyond this threshold, instead rewarding these left over funds to be dispersed to the organizations high-end executives in the form of call er cars and country club memberships (Mahar, M. , 2011). These lavish executive benefits in no route benefit the organization. They are unethical and borderline unlawful.Federal law states that non-profit, tax-exempt organizations cannot operate to the financial benefit of any individual. In the mid(prenominal)-1990s, Congress passed intermediate sanctions laws that have given the IRS authority to require individuals who make excessive compensation from a non-profit to pay the money back, plus a 25% fin. (Appleby, J. , 2004). It is a harsh suggestion to compensate executives to match their performance at the organization in which they lead. However there are different ways to measure hospital performance.There is a measure of how vigorous a CEO does in leading his or her hospital in providing beneficial programs to the community for example, uncompensated care for the scummy. Another way to measure or his or her success is by how well CEOs go for new programs and services that give in hopes attract private pay customers like specialized process centers, imaging centers, and cardiac centers. Many healthcare organizations across the nation are expanding and adding rummy services that are attracting private pay customers, giving hospitals the prospect to increase profits.This practice has its benefits in both providing a wider represent of care for those who can pay, and offering the hospital more flirt withs of financial gain, however, in many organizations, this has established precedence over the social missions of nonprofit organizations. In a landing field conducted by Jeffrey Kramer, PHD, and Rexford E. Santerre, PhD, 30 hospitals in Connecticut were examined on how various measures of performance discover the compensation of CEOs, which throughout the state, range from a modest $136,000 to an exorbitant $2 million plus salary.The study shows that CEO compensation is directly related to organizational size, stating, A 10 percent increase in the number of beds results in an 8 percent increase in CEO pay. Another 8% increase in pay is attri furthered to the CEO if the occupancy rate rises by 10%. In contrast, providing more uncompensated care and admitting an additional public-pay patient lowers the compensation of hospital CEOs. The results of the study reveal that hospital CEOs (certainly in the state of Connecticut) have financial incentive to increase the occupancy of privately insured patients rather than uncompensated care and public paid insurance patients, likewise suggesting that economic performance takes priority over charitable performance (Kramer, J. , Santerre, R. E). Notwithstanding, A non-distribution constraint on nonprofit organizations means that excessive profits cannot be distributed among those who make decisions within the organization this includes employees, managers, and board members.Hence, the nonprofit distinction ought to mean hospital executives are paid based upon their attainment at fulfi lling the charitable and social mission of the organization. Nonprofit hospitals have ethical responsibilities and obligations to serve the community, even in times of financial grapple. It is great for these organizations to recruit professionals that demonstrate the identical ideals and values of the organization. Healthcare leaders whose goal is to produce a healthy population through increased public programs and access to care is the typewrite of leader that hospitals and health systems should strive to obtain.Accomplished leaders can be found and appointed as a nonprofit CEO for a more reasonable (6 figure) salary if he or she is in the healthcare industry not for riches, but for offering a greater good. The American departure Cross for example, took in $3. 3 billion in revenue in 2009, however Red Cross CEO Gail McGovern took in only $456,000, according to the organizations IRS filing (Hancock, J. , 2011). McGovern is an example of a leader who recognizes the ethical fi nancial dilemmas of her organization, and result willingly take a more appropriate salary in order to accomplish the organizations goals.There is no mention of executive compensation in the Patient Protection & Affordable Care profess besides the suggestion that compensation should be reasonable. Hospital executives should be paid based on their production within the organization and their percentage to their community. As a nonprofit organization, pursuing the charitable mission should take greatest importance in determining final executive compensation. This spirit of an organizations mission should never be overshadowed by hospital expansion, financial well-being, or increased services and technology.Although these elements are incredibly important for the organization, the insured population, and the advancement of medicine, it is unethical for charitable organizations to use government subsidies for anything other than charity care and social benefit. Budget cuts, along wit h a infirm economy has resulted in hospitals engaging in host layoffs to conserve resources. According to the US Bureau of Labor Statistics, the month of August (2011) consisted of thirteen loudness layoffs in hospitals, totaling in over 1,000 jobs lost. The month before consisted of ten mass layoffs with over 600 lost jobs.This puts hospitals on pace for nearly 130 mass layoffs and over 8,000 jobs lost in 2011. To make matters seem worse, in an article posted by FierceHealthcare, a leading source of healthcare perplexity news for healthcare industry executives, AMA data claims that a 2 percent cut in the Medicare program would lead to the loss of 195,000 jobs by 2021 (Caramenico, A. , 2011). These layoffs would be decreased immensely if hospital executives received more appropriate salaries. Excessive salaries are not only draining resources from the hospital, but are too threatening the jobs of nurses, administrators, and other hospital employees.These staff members, who are on an face-to-face spectrum in terms of salary, face the possibility of layoffs at any time of financial vulnerability. The decision to cut jobs in non-profit hospitals while executives are steady receiving Wall Street salaries is unethical of the board of trustees. In financially difficult times, executives have the ethical responsibility to take pay cuts in order to maintain the organizations social reputation. Hospitals are extremely complex organizations that more often than not are the single largest employers in communities across the country.Hospital executives are responsible for making important decisions that will ultimately affect thousands of people. Many CEOs and members of boards of trustees argue that executive roles are removed too important to not have agonistic compensation packages. It is argued that million dollar salaries, added bonuses, hefty retirement plans, and other attractive perks are the only way to attract highly effective leaders capable of track a hospital in a time of economic struggle and health reform. Many hospitals have net revenues exceeding the billion-dollar mark, making it easier of display panel members to justify seven-figure salaries for CEOs.President and CEO of upstart York-Presbyterian Hospital, Dr. Herbert Pardes inherited a $9. 8 million package in 2008 that included $6. 8 million of antecedently awarded retirement benefits, which hell receive when he retires at the end of 2011. If Dr. Pardes worked at a public keep company of about the same size, his salary would be atrociously low. In 2009, Nasdaq CEO Robert Griefelds total compensation exceeded $13 million while his companys revenues were only $3. 4 billion. bare-ass York-Presbyterian has 2,353 beds and pulled in $3 billion in revenue in 2008, up 3% from 2007. A The Greater New York Hospital Association spokesman defended Dr.Pardes salary, stating, Dr. Pardes pay hypothesises his extraordinary success leading this large and complex organization, an d exceeding objectives to enhance patient care, strengthen financial perceptual constancy and promote community health in a very challenge environment. (Benson, B. , 2010) The Greater New York Hospital Association stated that CEO salaries reflect not only a national demand for their services, but to a fault the skills and leadership necessary to operate large, extremely complex medical centers that are open 24/7, generate millions and sometimes billions in revenue, and are often the largest employer in the community. (Benson 2010) Leading one of these charities requires an individual that possesses an understanding of the issues that are unique to the charitys mission as well as a high level of fundraising and management expertise. Attracting and retaining that type of talent requires a competitive level of compensation as dictated by the marketplace. It is important for donors to understand that since the average charity CEO earns roughly $150,000, a six-figure salary is not nec essarily a sign of excessive pay for a mid to large sized charity. Charity Navigator 2010) Today, executives are being paid to keep their organizations afloat amid closings of many hospitals nationwide due to persistently poor financial performances. CEOs face constant pressure to hire more staff, increase nurses salaries, implement more community programs, and invest in expensive technologies, while at the same time they are aware that insurers want to pay as little as possible. The CEO doubtless faces many challenges, and the responsibilities are incredibly complex.Even with a nonprofit status, many fight back executive compensation cuts, arguing that these organizational leaders deserve salaries competitive to corporate pay. Trustees pay executives based on total revenues, as well as how effective they are in providing patient safety, clinical quality, captive service, and cost effectiveness. Hospital executive compensation should be based on a number of elements, such as tota l revenue, the size of the organization, as well as the amount and effectiveness of community benefit.Instead of offering company cars and extravagant country club memberships, executives should be entitled to financial incentives to implement more community benefit programs. Peter Baristone, President & CEO of relegation Hospital located in Laguna Beach, CA referred to his own compensation strategy stating Collaborating with the community to identify, understand, and respond to community needs that have an jar on health and quality of life is a major goal for all CEOs. We establish specific quantifiable targets for each goal.One-seventh of my bonus depends on reaching the targets for community health and benefit. (Bogue, R, 1999). I recommend that all nonprofit Boards assemble an independent compensation committee, responsible for reviewing the CEOs performance and ensuring that the CEOs pay is appropriate. At its highest, CEO compensation should be capped at $1 million, thus all owing these large, urban hospitals to reprocess resources back into the hospital and community programs, while at the same time offering executives a market competitive salary, fit for a CEO.At a time where nearly 20% of adults are uninsured and community residents are in need of help in the form of various programs, it is more important than ever for nonprofit hospitals to perform its duty of being a non-profit organization and be of greater service to the community in which it serves. Nonprofits not only have the legal responsibility to implement such benefits, but also have the moral and ethical duty to carry out their social missions to the best of their ability, and as far as their recourses let them.By capping executive compensation, these resources can be better allocated to provide more charity care, to implement more community programs and benefits to produce a healthier community, and ensure beauteousness among staff salaries. Hospitals are unquestionably complex institu tions that require skilled managers, but theres no place for Wall Street-level salaries if we want an affordable health care system. Mark Scherzer (Benson, B. , 2010) Works Cited Terry, K. (2009, February 13). IRS Report Puts Tax-Exempt Hospitals Under Microscope CBS News.Breaking News Headlines Business, diversion & World News CBS News. 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S. & World USATODAY. com.Retrieved November 5, 2011, from http//www. usatoday. com/money/companies/management/2004-09-30-salary- Kramer, J. , & Santerre, R. E. (2010). Not-for-Profit Hospital CEO Performance and Pay Some Evidence from Connecticut. Inquiry, 47(3), 242-251 Hancock, J. (2011, August 28). For hospitals, nonprofit stops with CEOs paycheck Baltimore Sun. Featured Articles From The Baltimore Sun. Retrieved November 4, 2011, from http//articles. baltimoresun. com/2010-08-29/health/bs-bz-hancock-hospital-pay-20100829_1_hospitals-executive-compensation-ceos Caramenico, A. 2011, October 4). More mass layoffs as hospitals face payment cuts Fier ceHealthcare. Healthcare News, Hospital News, Healthcare Companies Fierce Healthcare. Retrieved October 26, 2011, from http//www. fiercehealthcare. com/story/more-mass-layoffs- hospitals-face-payment-cuts/2011-10-04 Benson, B. (2010). Hospital execs enjoy healthy paydays. (cover story). Crains New York Business, 26(12), 1-15. Bogue, R. (1999). An incentive for community health. Linking CEO compensation to community goals. Trustee The diary For Hospital Governing Boards, 52(5), 15-19.