Health care is a well-paying industry. Top executives make millions of dollars a year. Among them: Mayo Clinic's former CEO Dr. John Noseworthy, who received $3.45 million in 2018.
Noseworthy is not alone in the seven-figure club. Dr. Wyatt Decker, the former vice president in charge of the Arizona campus, made $2.11 million. Dr. Gianrico Farrugia, who was the leader of Mayo Clinic's Florida campus and became the overall president and CEO in 2019, made $1.91 million.
Their salary information is available because Mayo Clinic is a nonprofit, required annually to report top salaries to the IRS in a public document called a 990 form.
While "bedside" clinical workers, such as doctors and nurses, are also well compensated compared to other industries, a "wage gap" between administrators and clinical workers is growing annually, as executive salaries increase at much faster rates, according to industry studies.
A research study titled "The Growing Executive-Physician Wage Gap in Major US Nonprofit Hospitals and Burden of Nonclinical Workers on the US Healthcare System" found that, for the decade between 2005 and 2015, mean salaries of health care chief executives increased by 11 percent and management workers salaries grew by 14 percent. Physician salaries increased by 10 percent during that time.
Citing the growing "administrative burden," leader investigator Dr. Jerry Du, of University Hospitals Cleveland Medical Center, found that the salaries are adding a lot to the bottom line of medical costs, while utilization of health care is not increasing.
"While our study cannot comment on the value of nonclinical workers, the growth in costs appears to outpace plausible growth in value, given the relative stagnation of health care utilization during the 10-year period of our study," he wrote in the study. "It appears unlikely to us that the near-doubling of mean compensation to hospital executives is justified by the value added by their work."
Up, up and away
Mayo Clinic's CEO salary increased by 36.9 percent from 2015 to 2018. The salary of Dr. Gianrico Farrugia, who became CEO in 2019, grew by 101 percent from 2015 to 2018.
General raises for most Mayo Clinic employees ranged from 2 percent to 5 percent annually during that same time. For 2020,Mayo Clinic pay ranges will increase by 2 percent, with a 2.75 percent multiplier based on the new range maximum for eligible staff. That salary adjustment will take effect Feb. 19.
"Do you think these salaries make sense? Do you think they are good for society?" asked Dr. Roy Poses, the president of the Foundation for Integrity and Responsibility in Medicine. "Why is your CEO is worth 10 times as much as a regular doctor? What is the possible justification? You're not a Fortune 500 company."
Poses, who writes a blog called "Health Care Renewal," acknowledged that Mayo Clinic's paying doctors fixed salaries, rather than calculating pay by the number procedures they perform, is a much better system than most hospitals have. Plus the policy of having doctors serve in the top leadership positions is also a positive approach, he said.
"Mayo's structure is unique and I think praiseworthy," said Poses. However, he still questions the reasons behind having such high executive salaries at any organization focused on treating patients.
In all, 21 Mayo Clinic employees received salaries greater than $1 million in 2018. That's up from 20 million-dollar employees in 2017.
But there are even dramatic increases in the highly paid employees at lower levels. For instance, 8,432 Mayo Clinic employees earned $100,000 in 2018. That was up from 7,177 employees the previous year. That's a 17 percent increase in such earners.
How Mayo determines pay
Dr. Taylor Hays, Mayo Clinic's director for leadership and workforce development, explained that Mayo's approach to compensation is simple.
A Board of Trustees committee, the 13 member Governance and Nominating Committee, reviews salaries at comparable medical systems and then pegs Mayo Clinic's salaries near the median. That includes the salaries for the top administrators. Nine of the members are non-Mayo Clinic employees. The other four -- Farrugia, Bolton, Dr. Joshua Murphy and Chris Gade -- do not have a vote and are excluded from discussions about compensation and the CEO evaluation.
"We want the total compensation package for our employees to be such that it is not an issue. That's not why they chose not to somewhere or why they chose to leave," said Hays. "We want people to be fairly compensated and to come here because they believe in the mission. And to stay because they can have a fulfilling career carrying out that mission."
Poses questions the logic of following the industry trendswithout considering the actual benefit the employee adds to the institution and, ultimately, to the patient.
Awarding pay increases in a competitive market, where institution leaders see pay increases at rival medical centers and then follow suit, is "almost the psychology of a market bubble," Poses said. "The effect is to ratchet up salaries every year, since in the new year, almost no place will have salaries lower than last year's previous median."
High as Mayo's top salaries may seem compared to Rochester's per-capita income of $39,667, they are overshadowed by top earners are other health centers.
Bernard Tyson, chairman and CEO of Kaiser Foundation, made $16.08 million in 2017. Javon Bea, CEO of Javon Bea Hospital and Rochester developer, received $9.36 million from his much smaller health system in 2018. That's more than the top three Mayo Clinic executives combined.
Mayo Clinic cites retaining employees as one reason why it pays the salaries it does. Hays says the turnover for physicians is historically low, with an estimated 1 percent to 2 percent retiring each year and about 1 percent leaving for a job somewhere else.
A top-level departure in 2019 was Dr. Wyatt Decker, who left Mayo's Scottsdale, Ariz., campus, where he was vice president, to become CEO of Optum Health. Decker had served as Mayo's top leader in Scottsdale since 2011.
Decker was the second-highest paid executive at Mayo Clinic for the past few years, with his salary growing from $1.13 million in2015 to $2.11 million in 2018, an increase of 86 percent. His salary at Optum is not known, but it is safe to imagine that it is more than he was making at Mayo Clinic.
In discussing the rising executive salaries, Hays points out that the structure of Mayo Clinic was changed from a holding company to a single operating company under Noseworthy.
"Under Dr. (Denis) Cortese (Mayo's previous CEO), Mayo Clinic was a holding company. That was a less stressful job with much less administrative responsibilities," he said. "Having top leaders, who also are committed to the organization and committed to its values, but have to drive a complicated organization with an international footprint ... that's a huge responsibility. Having a talented leader at the top who is paid a competitive salary is what we want."
Du, who led the wage gap study, plans to research more in 2020 into the topic of how of the salaries of nonprofit CEOs and chief financial officers are decided and how much it adds to the cost of health care.
"As a society, we need to decide what we're going to value, essentially," he said.
Nurse calls high executive salaries 'disrespectful'
Like many nurses, Kelly Rosevold works 12-hour shifts as a charge nurse for Mayo Clinic Health System in Mankato. Often, she goes home to her four children exhausted.
Rosevold is a member of the Minnesota Nurses Association, which is negotiating a labor contract with Mayo Clinic. Mankato is one of the few areas where Mayo Clinic employs union nurses.
The annual salary increases for MNA nurses generally range from 2.25 percent to 3 percent, depending on the contract.
Rosevold was very frustrated to learn that the top Mayo Clinic executives make salaries of $3.4 million, $2.11 million and $1.9 million, with annual raises that have ranged between 8 percent and 42 percent.
"It's demeaning. It's somewhat disrespectful. We are the ones at the bedside," she said. "To have to beg for a percent or two to be able to provide what we feel is great care to our patients is really sad."
A Board of Trustees committee, the 13 member Governance and Nominating Committee, determines pay rates at Mayo Clinic, including the salaries for the top executives.
The committee reviews salaries at comparable medical systems and then pegs Mayo Clinic's salaries near the median. Nine of the members are non-Mayo Clinic employees. The other four -- CEO Dr. Gianrico Farrugia, CAO Jeff Bolton, Dr. Joshua Murphy and Chris Gade -- do not have a vote and are excluded from discussions about compensation and the CEO evaluation.
"The unfortunate part is that it is becoming more of a business versus treating patients, which is why nurses chose to do this," she said.
Adding to Rosevold's frustration is that when the union negotiates contracts, nurses are often accused of being "greedy."
"Doing what we do, no nurse does it for the money... They truly have a passion for what they do," she said. "But doesn't everybody want to be valued for the work they do?"
The MNA, which acknowledges that Mayo Clinic's primary campuses pay nurses better than many health systems, cites the high executive salaries as a sign that health care is becoming more business-focused, over being patient focused.
"It just goes to show that money that's being invested in healthcare now is not going directly to the bedside or to the people who provide service there," said MNA spokesman Rick Fuentes. "Obviously, it's going toward more corporate management, more corporate health care -- things that do not actually provide any value to the patient. And frankly, that's tragedy."
Top salaries in 2018:
* 1. Dr. John Noseworthy - $3.45 million.
* 2. Dr. Wyatt Decker - $2.11 million.
* 3. Dr. Gianrico Farrugia - $1.83 million.
* 4. Jeffrey Bolton - $1.62 million.
* 5. Dr. Bobbie S. Gostout - $1.56 million.
* 6. Dr. Charles Harper Jr. - $1.47 million.
* 7. Dr. Robert Weichmann - $1.39 million.
* 8. Dr. Alfredo Quinones-Hinojosa - $1.38 million.
* 9. Dr. Fredric B. Meyer - $1.33 million.
* 10. Harry N. Hoffman III - $1.33 million.
* 11. Dr. Richard S. Zimmerman - $1.31 million.
* 12. Dr. Mark A. Pichelmann - $1.27 million
* 13. Dr. Mark K. Lyons - $1.27 million.
* 14. Dr. Robert E. Wharen - $1.27 million.
* 15. Dr. Benard R. Bendok - $1.27 million.
* 16. Dr. Michael T. Eckstrom - $1.22 million.
* 17. Dr. Robert E. Nesse - $1.14 million.
* 18. Dr. Mark Steven - $1.13 million.
* 19. Dennis Dahlen - $1.1 million.
* 20. Dr. Gregory Gores - $1.05 million.
* 21. Dr. Clark C. Otley - $1.04 million.
* 22. Dr. Mark Ciota - $984,723.
* 23. Joshua B. Murphy - $979,131.
* 24. Dr. Dana Rademacher - $960,923.
* 25. Dr. Scott W. Fosko - $936,328.