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Each week, Health Affairs' Rob Lott brings you in-depth conversations with leading researchers and influencers shaping the big ideas in health policy and the health care industry.
A Health Podyssey goes beyond the pages of the health policy journal Health Affairs to tell stories behind the research and share policy implications. Learn how academics and economists frame their research questions and journey to the intersection of health, health care, and policy. Health policy nerds rejoice! This podcast is for you.
Hello, and welcome to A Health Podicy. I'm your host, Rob Lott. In recent years, we've seen a number of reports and studies suggesting that some nonprofit hospitals and health systems may not be as purely benevolent as we might imagine. For example, we know that although they're not necessarily beholden to shareholders, nonprofit hospitals can be just as focused on maximizing revenue in ways that put the organization's balance sheet and its executives own interests before the needs of the communities they serve. Of course, not all nonprofit hospitals are the same and this creates a challenge for policymakers trying to assess any given hospital's commitment to truly advancing community well-being and equity.
Rob Lott:One way to make just this kind of assessment is to look at wage inequality within the hospital. That is just how much more the C suite is making compared to the average worker in the hospital. It's a relatively simple measure, but its implications are complex, raising big questions about the ethics of health care delivery. And it's the subject of today's health policy. I'm here with Cal Fang, a PhD student at the University of Chicago.
Rob Lott:Along with his coauthors, he has a groundbreaking new study in the August issue of Health Affairs, examining the gap between nonprofit hospital CEO compensation and average employee wages from 2009 to 2023. I can't wait to hear more about their research and learn more about what it means for our health system going forward. Cao Feng, welcome to A Health Odyssey.
Cal Fang:Thank you very much, Rob, for the fantastic introduction, and I'm really honored to be here to share what we have found in this study.
Rob Lott:Great. Well, let's start with some context. Can you say a little bit about what we can learn or maybe hope to learn about our health system writ large by looking specifically at wage inequality?
Cal Fang:Yeah, of course. I really like your introduction. You brought up this misconception. Not to say misconception, but in a way, the public holds an impression that hospitals are all fueled by altruism, especially the nonprofit ones. And of course, so, these are institution that save lives and provide critical public goods.
Cal Fang:But when we zoom in on average wage inequality inside these hospitals, we start to see something deeper. We think it may be give us a sense of who's being prioritized and what arm is being valued more within the system, not just in their mission statements, but the story in their financial statement may be, will be more interesting. Say if we see nonprofit hospitals with wage inequality similar to a fortune 500 companies, then maybe we should reexamine our belief and have a conversation about what hospitals, particularly the nonprofits one should be like. As you mentioned, there has been growing literature, more conversations in academia and in public media about the fact of nonprofit hospitals functioning resembling more like corporate entities in how they allocate resource making daily decisions. This shift was some called the financialization, some called corporatization of healthcare, might be happening faster and more broadly than most of the public are aware right now.
Cal Fang:Studying wage inequality source give us a new lens. It helps us understand not just how hospitals operate, but how the values of the health care system and the industry itself are evolving.
Rob Lott:Got it. Okay. And you alluded to some of those reports and media pieces. I mentioned them as well. My sense is that a lot of what we know about these changes have been sort of captured anecdotally.
Rob Lott:And I'm wondering if you could maybe paint a picture for us of the sort of academic field of knowledge in this space before you set out to conduct this study. What do we already know about wage inequality and how does it relate to things like workers or patients' experience or satisfaction, hospital sustainability, their impact on the neighborhoods and the communities. Could think of 10 other questions that I might ask. What's the landscape that you entered as you approached this study?
Cal Fang:So we've known for a while that wage inequality is a growing issue in the broader US economy. Economic Policy Institute did this study in 02/2023, and their numbers show that from 1978 to 02/2022, CEO pay at top US companies grow more than 1200% while the average workers pay barely grow over 15%. By 02/2022, CEOs at the largest three fifty public companies were making three forty four times what the typical workers earn. Now, hospitals aren't public corporations, but prior research has shown that similar patterns of inequality existed in the healthcare sector, including nonprofit hospitals. There was this one paper published on JAMA Internal Medicine about the trend prior to 2015.
Cal Fang:After that, Long Institute also published a series of work on this topic. They even had this hospital index, which ranked hospitals by their social responsibility performance. One of the variable that they look at is the wage inequality. But there was a gap in our understanding of wage inequality trend in nonprofit hospitals of more recent years. Given everything that has happened, COVID, financial shocks, labor shortage, we wanted to build upon this pre work and ask how have things changed in these more turbulent years.
Cal Fang:In terms of the implications for wage inequality, we know that workers wage are tied to things like job satisfaction and that the dissertification of job of house workers can spill over to care quality and patient outcome. So while we don't have conclusive evidence right now on how wage inequality itself affects patient directly, it's reasonable to assume that extreme disparities might undermine moral law or trust inside hospitals. And that's not just a workforce issue, it's a care quality issues too.
Rob Lott:Got it. Okay. Well, let's take a closer look at your paper. What exactly did you seek to measure and how?
Cal Fang:We wanted to measure how big the pay gap is between hospital CEOs, top executives and the other hospital workers and how that gap has changed over time. We focused specifically on nonprofit hospitals from 2009 to 2023, which is mostly due to a data reason. To do this, we combine two big national data sets. One is the IRS Form nine ninety. Shout out to all the health service researcher out there.
Cal Fang:It's a really good data set that is oftentimes overlooked by people in this field. So basically it is a tax return form similar to the W-two you and I would have to submit to IRS at the end of the year, all the nonprofit hospital have to file this every year and they have to report a lot of important information, operation decision, financial status, asset holding, which included the CEO and executive compensation. The other data is Medicare cost reports, which include wage and hour information for all types of hospital workers, nurses, technician, housekeepers, and dietary workers and so on. But people in this field are probably aware Medicare cost reports have relatively a large missingness issue for some of the variables. So we weren't able to use all the variables that we were interested in.
Cal Fang:At the end, we had to try to find what can capture what we're interested in, but at the same time, have a good data quality. Using these data, we calculated the average annual wage.
Rob Lott:Got it. Okay, and so give us your findings. What did you learn from the study?
Cal Fang:The biggest takeaway is that wage inequality in nonprofit hospitals has grown steadily over the past fifteen years. In 2029, hospital CEOs were making about 10 times what the average hospital workers earn. By 2023, that ratio had grown to 12 to one. So compared to what economic policy institute find, the number is relatively not as shocking, but it's still very large gap. And the reason we're seeing a number not as big could be due to one, the existing study sometimes focused on the really large entity.
Cal Fang:And we included all the nonprofit hospital. And the second reason is the, like we just say, the total average variable that we use, the denominator of our ratio included CEO and the top executives pay as well. So if we are only looking at CEO versus other workers, this ratio would have been larger. We also found that CEO and executive wages increased a lot faster than wages for everyone else. While average hospital worker wages grow about 10% over this period, CEO pay jumped by more than 27%.
Rob Lott:Wow. Alright. I wanna dig into those numbers, but first, let's take a quick break. And we're back. I'm here with Cal Feng, talking about his recent research looking at the gap between nonprofit hospital CEO compensation and, average employee wages.
Rob Lott:And, one of the takeaways, recent takeaways you just mentioned, is that that gap grew generally on average. I'm wondering if you can say a little bit about how the COVID pandemic affected those trends.
Cal Fang:COVID definitely shook things up, maybe not in the way people expected. There was a lot of media coverage early in the pandemic about CEOs making millions while frontline workers were experiencing pay suspension or seeing pay cuts. So one might expect a wage and quality to spike, but we actually saw a slight narrowing in the CEO to average worker pay ratio in the early pandemic years defined as 02/2019, 02/2020, 2021 in our study. That was largely driven by raising wages for contract staff, like travel nurses. Hospitals were desperate to step up at the time and they had to pay a premium for it.
Cal Fang:So even though executive pay stayed high and were continue growing at the time, the denominator, the average worker wage also went up, which narrowed the gap temporarily. By 2022 and 2023, which is defined as a later COVID year in our study, exactly which started climbing back more and the overall trend of growing inequality picked back up. Yeah, COVID actually more like a short term shock than a permanent reset.
Rob Lott:Okay. And can you say a little more about the kind of variation that you see sort of under the hood with these numbers? What kind of characteristics are associated with higher inequality versus lower inequality when you're looking at one hospital versus another?
Cal Fang:We saw a pretty clear pattern. Hospitals that are large, urban, or part of a health system, meaning they're like one of a chain hospital, tend to have the highest CO pay and the biggest wage gaps between executives and frontline workers. These are often hospitals with more resource and more complex operations. So that didn't come up as a surprise. But what was really interesting is that the opposite group, smaller, rural and independent hospitals actually saw the biggest increase in CEO and top executive pay during our study period.
Cal Fang:Also because of the sample size issue, we did not get significant results on how the pay gap has changed in these hospitals. But it might be the case that even though their pay gaps started out smaller, they're catching up fast. This means that wage inequality isn't just a big system problem anymore, it's spreading more broadly across the healthcare sector.
Rob Lott:Okay. And I'm wondering if you can sort of take us back to those early days when you ran the numbers, they came back and you were kind of looking at these findings for the first time. How surprised were you? Was this sort of confirmation of what you suspected or was there anything that kind of caught you off guard?
Cal Fang:I would say it's sort of a mixture. To be honest, we were not surprised by the general trend. After all, there have been so many reports, news stories showing the widening wage gap across the whole US economy. And there doesn't seem to be a reason to believe nonprofit hospitals would be an exception. Especially, we now know that due to the financialization process, nonprofit hospitals are functioning more and more like full profit entities.
Cal Fang:But we were surprised by some of the subgroup analysis results. For example, we expected the biggest increase in CO pay to happen at large urban hospitals. And instead, like we just discussed, it was the smaller rural and independent hospitals that showed the most growth over time. That wasn't something we saw coming, and it suggests the wage inequality is spreading over in this industry. It's showing up in places we've historically seen as more, like, community based or resource limited.
Cal Fang:We also look into something that came up a lot in media coverage during the pandemic, claims that CEOs at hospitals receiving CARES Act of funding, the provider relief fund, were getting big raises. We wanted to see if the data supported that, and at least in our analysis, we didn't find clear evidence that those hospital were increasing CEO pay more than other hospitals.
Rob Lott:Got it. Got it. So there is this sort of suspicion that some of the hospitals that received kind of a big relief check from the federal government around COVID maybe were using some of those funds to pad their CEO salaries. And what you're saying is that there's there's no evidence that was the case.
Cal Fang:Yes. Basically, is the case.
Rob Lott:Got it. Okay. Well, let's look ahead for a moment For our listeners, our readers who might be reading your paper and wondering, oh, boy, what do we what do we do about this? Where do we go from here in terms of potential policy solutions? I'm wondering if your paper were to inspire perhaps concrete or specific policy change or improvement in the space, what would you envision?
Cal Fang:Building up on what Lon did with their hospital index about the social responsibility performance, one concrete idea we'd love to see taken seriously is adding wage inequality as a factor in how nonprofit hospitals are evaluated, especially when it comes to their community benefit obligations. Right now, nonprofit hospitals can maintain their tax exempt status by reporting things like charity care or community investments. Those are good, have their own issue, but wage practice aren't really part of the conversation. And that's a gap because in many places, nonprofit hospitals are some of the largest employers in those small towns that come into LMI. So when there is a big pay gap between executives and frontline workers in these nonprofit hospital, it doesn't just reflect internal priorities, it can actually reinforce inequality in the broader local economy.
Cal Fang:That matters, especially when low wage rate rolls in hospitals are disproportionately held by women and people of color. Wage inequality in hospitals in that way, in part becomes a racial and gender equity issues as well. So I think the next step is asking, if these institutions are supposed to serve the community, shouldn't we be looking at how they treat their workforce as part of that condition?
Rob Lott:Great. Well, perhaps that's a good spot for us to wrap up, and a good way to think about the implications of your research going forward. Cal Feng, thank you so much for taking the time to chat with us. I really enjoyed it.
Cal Fang:Thank you so much. It was such an honor.
Rob Lott:And to our listeners, thanks again for tuning in. If you enjoyed this episode, go ahead and subscribe, recommend it to a friend, leave a review, and, of course, tune in next week. Thanks, everyone. Thanks for listening. If you enjoyed today's episode, I hope you'll tell a friend about a health policy.