This guest post was contributed by Seth Anthony, Chief Revenue Consultant at LW Consulting, Inc., a recognized leader in providing compliance and risk management solutions across the full continuum of healthcare delivery.
Healthcare labor costs are up. You know that. We know that. Finding front-line workers, especially credentialed caregivers, has never been more challenging. To fill those gaps, many healthcare providers, including senior living organizations, have had to turn to staffing agencies to fill their gaps.
The issue has gotten so bad that nearly 200 members of the United States House of Representatives sent a letter to the Biden administration urging them to investigate price gouging by staffing agencies. The American Hospital Association (AHA) and the American Health Care Association/National Center for Assisted Living (AHCA/NCAL) quickly followed suit. In an effort to not alienate nurses, they chose their language carefully, going so far as to say, “Please be sure that our concerns focus directly on the agencies and not the personnel they represent.”
Those personnel, often referred to as “travel nurses,” are sometimes looked down upon by their peers for being mercenary actors in a world that desires more personalized care. The frustration felt by these nurses is palpable, as can be seen in Reddit. The post, titled “Why would Congress want to cap travel nurse salaries, and not cap hospital CEO salaries?”, is an enlightening read.
User @forgotmynameagain22 asks, “What do the CEOs even do? Ours makes $4+ million/year not including bonuses. If he disappears tomorrow would anyone notice?” Another user points to an Economic Policy Institute article from 2019, which reports that CEO compensation has grown by 940% since 1978, while typical worker compensation has only risen 12% during that same period.
Obviously, demonizing nurses for demanding high pay during a staffing shortage is not a route that will solve the challenges facing the aging services space, but there’s another storm brewing that senior living leaders need to be aware of. As retrospective studies of the pandemic begin, executive compensation in healthcare is already coming under scrutiny by regulators and Congress, for a variety of reasons.
As reported by McKnight’s Senior Living, LW Consulting, Inc. (LWCI) released its first report on the compensation paid to senior living leaders, with a focus on CEOs, CFOs and COOs. Utilizing publicly available data from the IRS Form 990, Schedule J, LWCI found that the average not-for-profit senior living CEO at the country’s 200 largest providers earns a compensation package worth more than $500,000 per year. That number outpaces similarly situated CFOs by 40% and COOs by 38%.
According to the United States Bureau of Labor Statistics, the average registered nurse earned $75,303 per year in 2020, or about 15% of the salary earned by the average aging services CEO. We should point out this is not a criticism of the salaries earned by CEOs. Senior living executives have some of the toughest jobs out there, especially when coupled with not-for-profit missions that drive their services. Rather, this is the kind of data that providers need to understand, and be able to respond with, to shore up their positions when the questions do start coming.
In the past, many boards of directors chose to do their own compensation studies and analyses when handling executive compensation. While this isn’t against the law, it does get into an ethically gray space, especially if board members have any ties to the organization as a vendor or compensated individual. This is an easy area in which to mitigate risk, though it does have an associated cost.
Boards should always look to hire an outside, completely independent firm to review their executive compensation plans. This should be done each time a key executive position turns over, along with a complete strategic executive compensation review every five years. The documentation created during this endeavor is a key piece of information that will protect a provider when questions regarding executive compensation come to light.
In an era when it seems all the forces of the world are mounting against healthcare providers, we know that the best defense is a good offense. Understanding the strategic value of your C-suite is critical to a long-term revenue plan that uplifts all team members, from the front line through the CEO. Employees, residents and donors appreciate knowing that the board is working hard to compensate the entire organization fairly. Transparency and independence are the most important factors in such a process and will bring trust to all parties involved. Remember, rising tides lift all boats!