The Hidden Costs of Nonprofit Hospital Leadership: Rising CEO Pay and Community Impact

In the United States, nearly 50% of hospitals operate as nonprofit entities, which exempts them from paying local, state, and federal taxes. In exchange for these tax breaks, they are expected to offer medical care and other community health benefits, such as free clinics and screenings, especially for those who cannot afford to pay.

These hospitals are also tasked with providing charity care to underserved patients, yet the compensation packages of their top executives often exceed $1 million annually—and this trend is only increasing. A study conducted by Rice University’s Baker Institute for Public Policy revealed that CEO pay in nonprofit hospitals and medical systems surged by 30% between 2012 and 2019. This means that average compensation rose from just under $1 million to $1.3 million.

Vivian Ho, a health economist at Rice University, pointed out that while generous compensation might be acceptable if nonprofit hospitals consistently deliver on their mission of providing affordable care, there is concern that rising CEO pay could lead to decisions that do not benefit patients. Ho referenced a previous study indicating that higher hospital profit margins do not necessarily translate to more charity care.

The study’s analysis of federal tax data revealed that CEO salaries have increased across the board, particularly in hospital systems that reported the highest financial returns. This raises questions about whether these nonprofit medical systems are prioritizing profit margins over their charitable missions, thereby undermining the purpose of their tax-exempt status.

Additionally, less than half of nonprofit hospitals notify patients about available financial assistance before pursuing unpaid bills. Some of the most prestigious nonprofit hospitals in the country even resort to garnishing wages or denying non-emergency care to those with outstanding debts. This is happening at a time when Americans are generally less healthy compared to citizens of other wealthy nations.

One reason for the disconnect between CEO pay and affordable healthcare, according to Ho, is that hospital boards—many of whose members come from for-profit sectors—set executive compensation. With over half of the board members in top-ranked hospitals having backgrounds in finance or business and only 15% having clinical experience, the focus may be skewed away from the hospital’s core mission.

When approached for a response, the American Hospital Association criticized the Rice study, arguing that it selectively used data and failed to contextualize hospital CEO salaries within the broader landscape of executive compensation. Rick Pollack, the association’s president, noted that executive pay is rising across all sectors, forcing nonprofits to offer competitive salaries to attract top talent.

Lisa Bielamowicz, MD, co-founder of Gist Healthcare, added that despite the need for transparency, even nonprofit hospitals must achieve a positive operating margin to stay afloat. Without financial stability, she warned, hospitals could face closures or cuts to essential services.

Ultimately, how much a nonprofit hospital CEO should earn is a matter of philosophy, argued Ge Bai, a professor of health policy at Johns Hopkins. Bai believes that the distinction between nonprofit and for-profit hospitals has blurred, with tax-exempt hospitals behaving increasingly like for-profit entities. This shift has fueled mergers and acquisitions in the healthcare sector, reducing competition and limiting patient choices.

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