Hospital Executive Salaries

Normally, when the Pop Tort writes a post, I’m sitting in the amen chorus. Today’s post is a little different.

The post talks about excessive salaries of hospital executives, particularly at hospitals that are struggling financially. In the abstract, I do not mind hospital executives making a great deal of money. Money attracts talent and hospitals are complex enterprises that need quality executive talent. We want the talented people working at hospitals instead of running widget manufacturers.

Are some hospital administrators woefully overpaid? Of course, there are a lot of hospital executives making a great deal of money at struggling hospitals. How do they justify that? Some can’t. But the ultimate question is what shape would the hospital be in if not for the quality leadership at the top? If the answer is “millions of dollars worse,” then you have someone who ought to be paid very well.

Baseball has a way to measure this statistically for hitters: value over replacement player (VORP). This statistic determines how much a hitter contributes in comparison to a fictitious “replacement player,” who is the statistical average for his position. How many more runs do you score with Derek Jeter compared to Joe Average shortstop?

Of course, in real life, it is much more difficult to value talent because there are so many variables at play and it requires so many judgment calls. Accordingly, the only people who can begin to value the worth of a hospital administrator are the Board of Directors of the hospital or whoever is evaluating the top hospital administrators. If they neutrally and objectively believe their top guy is worth millions of dollars to their hospital because of the administrator’s unique skills and talents, I say pay the woman (or man).

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