The streets have been flooded this summer with California-bred, Big Union ballot initiatives. Although we celebrated a big win when the disastrous “Clean Elections” initiative failed to gather enough signatures, two others were filed at the deadline: the Minimum Wage Initiative, and a measure that seeks to cap the pay of hospital executives. Both submitted over 250,000 union bought signatures.
What is the impetus behind the Hospital Executive Compensation Act? The main driver/funder is the Service Employees International Union – United Healthcare Workers West (SEIU-UWW) out of California. They have led an effort of ballot initiatives and legislation over the past five years in several states to cap executive pay at hospitals. After losing a court case in El Camino County, California in 2013, where their ballot measure was ruled unconstitutional, the big union group has brought their bad ideas to Arizona.
Proponents argue hospitals receive enormous public subsidies, some in the way of property, income, and sales taxes exemptions, as well as by compensation through Medicaid and Medicare patients. Therefore, they ought to be able to prove they are providing more uncompensated care to the community than they are paying in salaries to top executives.
While there are a lot of problems associated with government subsidized medicine (the Club opposed Medicaid expansion in 2013), the fact is CEO compensation represents a fraction of the billions of dollars of these large hospital organizations’ total budget. Their salaries are determined by the market of supply and demand and for non-profits generally by the 50th percentile of CEO compensation of all hospitals. Many of these administrators are not only managing complex facilities with hundreds of beds and professional staff, but multiple hospitals as well.
Additionally, the metric of percentage of uncompensated care is misleading and unrelated to executive compensation. In order for hospitals to provide charity care, they must first have margins; revenues must exceed expenses. In order to accomplish this, many hospitals including non-profits, must establish services and technologies to attract private patients. Indigent care is driven by how many qualified patients come to a hospital.
It is in fact the government that has caused this problem. Over time, with the introduction of Medicaid, Medicare, Obamacare, and a tax and regulatory structure that impairs consumer choice and price signals, the government has inflated the cost of healthcare. By providing generous healthcare subsidies in the billions of dollars, they have displaced those costs onto everyone else. As they have turned the ratchet on socialized medicine over the past 50 years, costs have soared, and they have had to scramble to institute more “cost containment” measures – executive pay caps are just the latest. It is not generous pay scales that hinder charity care – it is a whole system wrought in bureaucracy where administrators are forced into economic decisions based upon government reimbursements and regulations.
Unmentioned by the initiative proponents is the IRS already requires non-profit hospitals to disclose executive salaries and benefits. The Treasury Department does a review and audit every three years to ensure that pay is reasonable and to ensure compliance with their status requirements. If they are found to be out of compliance, their exempt status can be revoked, forcing them to apply as a private hospital and to remit the applicable taxes. Hospitals are already highly regulated entities.
This initiative isn’t only antithetical to free markets principles; it will be a power grab for the state. The Attorney General will have the authority to audit a hospitals’ books – if found guilty of “excessive pay”, they could lose their state licenses as well as be charged under state consumer fraud laws. Furthermore, the AG will be allowed to place a representative on the hospital in question, board of directors. This is a gross infringement by the state into private organizations.
If passed, we can expect many of these executives to seek employment elsewhere, most likely out of state – taking their wealth with them. Just as countries such as Canada have experienced severe “Brain Drain” when they limited the compensation of its doctors and surgeons – Arizona will see the same. Experienced and talented hospital executives will be replaced with less qualified administrators. This will have a direct effect on the quality of care patients receive.
Executive compensation is in the end a red herring. This is just a means to in increase unionization in the health care industry and to distract people from the real culprit of high healthcare costs. Arizona voters should reject this very bad idea.