A few weeks ago someone posted the annual compensation of a single healthcare CEO in a social media forum. I forget which CEO and which forum, but I've seen this before and it is provocative.
Whenever I see this I always wind up wondering how executive compensation across various healthcare sectors compares. For example, how does executive compensation in the pharmaceutical sector compare to executive compensation in the hospital sector or the healthcare IT sector?
I searched for awhile, but always came up short, so I decided to compile my own version for 6 different healthcare sectors. The first big takeaway (and no real surprise as the headline suggests) is the rank order of the sectors. The highest is pharmaceutical, followed by for-profit hospital systems, insurance payers, healthcare IT, medical devices and then finally nonprofit hospital systems. There are a few disclaimers, of course, and I've added those at the end of the six charts.
This isn't meant to be scientific, but it does represent an interesting snapshot of executive compensation by healthcare sector for the top five executives at 25 publicly traded and five nonprofit companies. Using publicly available information, the total list is 150 executives at 30 companies in six sectors. As a way to compare companies both within and to other sectors, the primary sort column was total executive compensation (E-Comp Total).
There is no mistaking the fact that the sector with the highest market capitalization ‒ pharmaceutical companies ‒ also had the highest executive compensation. This sector also had the highest net profit margins (NPMs) of any healthcare sector and it could well be the highest NPMs for any industry including those outside of healthcare.
The second-highest sector was for-profit hospital systems. What's interesting to note here is the relative size of the five companies by market capitalization compared to those in the pharmaceutical sector ‒ a comparatively small $60 billion to well over $1 trillion.
Not far behind and ranked third overall were the insurance payers.
Ranked fourth was healthcare IT ‒ but there's a sizable caveat here in that one of the biggest companies in this sector (EHR vendor
Surprisingly, medical devices came in next to last as the fifth-highest sector for executive compensation, but the margin was relatively narrow ($147 million to $121 million). It's easy to imagine a different set of five companies swinging this one much higher in the ranking order, but I tried to select those that were exclusive to medical devices.
Not surprisingly, the nonprofit hospital systems ranked last in terms of executive compensation. One important distinction here is that the numbers were sourced through IRS Form 990s and most were from 2013 filings (so are likely to represent 2012 compensation).
So what was the total across these six sectors?
About 150 healthcare executives ‒ across 30 different companies (most publicly traded) ‒ took home about $960 million in annual compensation. If we had included all the executives at all 30 companies, it's likely that the total would easily have eclipsed $1 billion.
Executive compensation is a big issue in every industry ‒ and that includes healthcare. By every measure we can visibly see the pharmaceutical industry continues to reign supreme in terms of major market indices ‒ now including even a rough approximation of executive compensation.
This was also highlighted recently in the Milliman Medical Index, which graphically illustrated the effect of drug pricing on annual consumer healthcare costs.
We need an intelligent debate on the cost of healthcare. Our national healthcare expenditure (NHE) for this year is likely to surpass $3.2 trillion. When divided by the current population (319 million) we are effectively spending more than $10,000 per year on every American ‒ just for healthcare.
The Affordable Care Act made a significant dent in the number of uninsured, but that was a debate around coverage, not cost. The debate we've managed to avoid ‒ and the one we should all anticipate ahead, especially heading into a presidential election cycle ‒ is the one around cost. Saying that healthcare costs are "unsustainable" is a popular characterization, but it solves nothing.
We don’t need to put 30 million new people in the same maze. We need to first figure out (our healthcare system) and improve it. Mark T. Bertolini, CEO of
Aetna ‒ Keynote at HIMSS14
At the very close of 2011 I wrote a healthcare list here on Forbes that showcased some of the appalling metrics that were evident then and that we continue to live with to this day. Sadly, not much has changed on that list ‒ except #12 (number of uninsured). Many of the statistics have remained the same ‒ or simply gotten worse. Executive compensation needs to be a part of the cost debate at a time when increasing drug prices are clearly and directly affecting the cost of healthcare for every American. It won't be easy ‒ or popular ‒ but it's gone well past unsustainable to unavoidable.
Disclaimers:
- Data on publicly traded companies was sourced through Morningstar (eg: Aetna free)
- Data for Nonprofit hospital systems was sourced through IRS Form 990 (Charity Navigator ‒ free)
- Compensation reported this way is generally cash and bonuses and does not include stock
- Compensation data for publicly traded companies was for 2014 (and 2013 for nonprofits)
- Market capitalization and NPM figures were sourced as of close of market on 5/22/2015
- Publicly traded (often foreign) companies that didn't report executive compensation to Morningstar were excluded
- Only the top 5 executives were sourced (many more exist)
- Compensation was rounded to nearest million
- Market Capitalization was rounded to nearest billion
- Sectors like Healthcare REIT's, TPA's, Insurance Brokers, Consulting Firms and Healthcare Construction were not included ‒ but might be in future analysis
- Some giant companies span industries and healthcare sectors (ie: GE and Siemens) and were excluded
