Hospital CEO Bonuses Reward Volume and Growth

June 16, 2013— -- Like hospital leaders everywhere, the people running Valley Medical Center in Renton, Wash., talk frequently about the need to control soaring medical costs.

"We are working to reduce the overall cost of health care and to transform health care delivery," Lisa Jensen, chairwoman of the hospital's board of trustees, said last year.

Experts say that's a good prescription for the entire U.S. health industry, which costs the economy far more than systems in other developed countries, but too often delivers mediocre results and is widely seen to be unsustainable at its current growth rate, according to a report from the Centers for Medicare and Medicaid Services.

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. In 2012 Roodman's pay was $1.2 million, which included a $213,000 bonus, about a third of which was related to financial goals and expansion.

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 got another bonus.

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

Find an extended version of this story and a chart linking to all the documents obtained for it at www.KaiserHealthNews.org.

"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. "They celebrate the CEO when the hospital is full instead of rewarding business models that improve patients' care."

Thirty percent of what's spent on U.S. health care is unnecessary, studies have estimated. U.S. hospitals spend twice as much per discharged patient as hospitals in other developed nations without delivering much better results, according to research financed by the Commonwealth Fund.

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