Executive salaries have been taking center stage in the news. The BDN recently published articles on executive salaries in local hospitals, “Maine’s hospitals: Big Jobs Big Pay” (BDN, March 7). I have felt for some time that salaries in the health care industry are excessive.
I have heard most of the arguments before. “We are making life and death decisions.” This doesn’t apply to administrators. “Extensive education is needed for the job.” This may be true for physicians, but does this apply to administrators? If health care management education is important, why did Eastern Maine Healthcare Systems put an emergency room doc in charge of Blue Hill hospital? When I looked at the osteopathic curriculum, I didn’t see a lot of management.
“The industry is unique.” Granted, every industry or business has certain aspects of their operation that are unique. It would be difficult to explain why the management functions of a hospital — purchasing, payroll, personnel, inventory, etc. — are substantially different for a hospital than a manufacturing firm or school district.
From my personal working experience, which includes a Baptist women’s college, Jewish owned junkyard, state-owned socialist businesses and capitalist manufacturers, two facts are clear to me. First, every organization thinks it is unique. Second, it is not.
There is a limited supply of management personnel. There are a number of professions that control their own supply either by licensing (including my own CPA) or experience requirements. Although these requirements may be necessary, if they limit supply and therefore affect or increase price, an argument may be made for national wage regulation especially in a profession as crucial as the health care industry.
An excellent comparison can be made between the management of health care and education institutions. Both are either tax supported or subsidized. This ranges from fully tax-supported local school districts to indirect subsidies in the form of exemption from property and equipment taxes. If not-for-profit health care businesses paid taxes as a business, the tax on a $150,000 home in Bangor would be reduced by approximately $250.
Both health care and education industries are monopolistic. Local school districts are monopolies. Colleges are oligopolies either by geographic location or lower cost via taxpayer support. Health care in northern Maine is an oligopoly in the best case scenario and in many cases both horizontal and vertical monopoly.
I understand the need for this concentration, but this also creates a need for more transparency and regulation than might be needed in a more competitive market such as Boston.
The work force of both health care and education systems are highly educated. Both produce an essential intangible service. The typical manufacturer had a single customer base — the purchaser of the product. Both health care and education have multiple customer bases. Donors and taxpayers are customer bases. Educational organizations are also dealing with students (input) who buy or get the output of the organization, but also employers and colleges who acquire the output. Hospitals not only have patients but in many cases other providers that recommend their services.
A survey of the writings of the best management guru of our times, Peter Drucker, finds very little difference among management of various industries, form of organization or type of institutions. He did write a book on the management of not-for-profits, but also wrote prolifically on general management without the distinction. I recognize that if one changes industries, while you do bring a new perspective to the position, you also have an obligation to learn the different aspects of the business as quickly as possible.
Given the similarities of the leadership positions in health care and education, are the salaries comparable?
According to the March 7 BDN article, the salary range for most health care CEOs in this area is $250,000 to $625,000. School superintendents in this region are paid approximately $75,000 to $125,000. Are the health care managers worth four to five times what their counterparts earn in education? Several administrators at the smallest hospitals in the state are paid more than the school superintendents in the largest districts. Should the starting salary of a physician be equivalent to the top of the scale for a full professor at the University of Maine? Should the salary of the CEO of EMHS be triple the salary of the University of Maine System chancellor? There are numerous examples of positions in health care that require two years of education that have a higher starting pay than teachers. Who is more important in your child’s life? Are banking and finance the only industries where salaries are improperly skewed?
Nick Bearce of Bangor is a semiretired CPA-financial analyst.