NCHA Statement on North Carolina State Treasurer Report on Nonprofit Health System Leaders’ Compensation

Cary, NC – February 15, 2023 – A report released today by the North Carolina State Treasurer suggests that North Carolina health system executives’ compensation should be called into question and accuses them of not being sincerely committed to their organizations’ missions to improve the health of patients and communities. These claims are egregious for a host of reasons, especially since North Carolina has some of the nation’s finest and best-led health systems and hospitals that excel at delivering safe, high-quality health care 24/7/365 and are respected and growing destinations for medical education, health care professions training and research.   

At a time when other elected leaders in Raleigh from both parties are working to advance healthcare to more than 600,000 North Carolinians through Medicaid expansion and want to help financially stabilize struggling rural hospitals, the Treasurer remains silent about those urgent needs. Instead of contributing to doing the hard and serious work of positively changing the healthcare landscape in North Carolina for the long run, all he does is recycle tired rhetoric and vilify hospital leaders who are devoting their lives and careers to serving the people of our state. 

“It is interesting timing that the Treasurer is pushing a narrative about health system executive leaders’ compensation on the same day that hospital leaders are gathering to start our annual Winter Meeting. While they are discussing how to make high-quality healthcare more equitable, affordable, transparent, and accessible for North Carolinians, the Treasurer opines without offering any actual solutions,” said Steve Lawler, president and CEO of the North Carolina Healthcare Association. “Health system executives are meeting this week to share strategies to improve affordability and transparency, accelerate health equity, strengthen rural healthcare, and to support their employees to continue carrying out mission-critical services. They are doing this because these are the things that health system leaders stay awake worrying about — whether they can continue to provide good paying jobs and essential services for their communities.,” Lawler continued. “They’ve chosen careers in hospital and health system executive leadership roles because they believe they are stewards of caring for their employees and the communities.”  

The timing of the Treasurer’s report is also interesting in how it distracts public attention from the secretive selection process followed for a new third-party administrator for the State Health Plan. It’s a change that will result in moving the State Health Plan’s business administration from a North Carolina-based not-for-profit organization to a for-profit company where the CEO made more than $28 million in compensation last year.

Putting health system executive compensation in context 

Executive compensation of health system leaders is the responsibility of an organization’s board of trustees. They are not able to ‘enrich themselves.’ There is a rigorous process prescribed by the Internal Revenue Service for setting executive compensation. For tax exempt hospitals, an independent panel drawn from the board of trustees is charged with setting CEO compensation. To help determine appropriate compensation, this independent panel relies on benchmark data from similar organizations, and the compensation package is approved by the entire board. 

Hospitals and health systems are transparent about these salaries. Nonprofits disclose them on their IRS Form 990s. The compensation of the chief executive officer and other top executives at public hospitals are, by law, a matter of public record.  

In terms of scope of job responsibilities, many chief executives of large health systems, some multi-state, direct an array of care services that include overseeing multiple large acute care hospitals, physician groups, primary care and specialty clinics, home health organizations and often rehabilitation and behavioral health care facilities, as well, in a constantly shifting state and federal regulatory environment.  

Some of their operational responsibilities that are unlike any other business or nonprofit organization include: 

The report also fails to provide important context on significant challenges facing health system and hospital executives. Challenges that demand they act fast, think outside the box, make difficult and high-stakes decisions, and take on new community health-building roles in addition to dealing with the state’s ongoing and growing behavioral health care crisis.  

The Treasurer seems to want North Carolinians to forget that during the COVID-19 pandemic, the nation experienced significant problems with its under-funded public healthcare system. Public health agencies did not have adequate financial or staff resources to cope with a massive public health emergency. Hospitals and health systems did not hesitate to step into the breach and take on additional unexpected responsibilities, such as: taking care of very sick COVID-19 patients, assisting public health agencies with case tracking and reporting, standing up vaccine clinics, innovating new ways to deliver care, and rapidly communicating effective new care procedures and clinical protocols with one another to maintain safe, high-quality patient care. 

The report also does not address how, from a financial perspective, 2022 was even bleaker for hospitals and health systems than the previous two years. A January 2023 national report from Kaufman Hall, a Chicago-based management consulting firm, found that December was the only month last year that hospitals realized positive year-to-date margins. It reported that “approximately half of U.S. hospitals finished 2022 with a negative margin as growth in expenses outpaced revenue increases.” 

“It’s a uniquely tough time to be a successful hospital CEO, COO or Chief Financial Officer,” Lawler said.  “Many hospitals and health systems across the country and here in North Carolina are being forced to make difficult decisions to balance growing inflationary pressures and workforce shortages that drive up their labor expenses with inadequate reimbursement from Medicare and Medicaid on the revenue side. Through it all, their north star is improving the health of the patients and communities they serve and continuing to support their employees’ well-being.”  

About NCHA 

Founded in 1918, North Carolina Healthcare Association (NCHA) is the united voice of the North Carolina healthcare community. Representing more than 130 hospitals, health systems, physician groups and other healthcare organizations, NCHA works with our members to improve the health of North Carolina communities by advocating for sound public policies and collaborative partnerships and by providing insights, services, support, and education to expand access to high quality, efficient, affordable, and integrated health care for all North Carolinians.