As a union pushes to cap hospital CEO pay, it’s accused of playing politics

The aim is aspirational: Hospital executives shouldn't make more than the president of the United States.

Next spring, Los Angeles city voters will have a chance to put the brake on runaway salaries by capping hospital executives’ pay at $450,000 a year. The measure, proposed by a local union and approved by the City Council in June, will appear on the March 2024 ballot.

The vote will be the first fruit of a long-running campaign by the Service Employees International Union-United Healthcare Workers West, a California union with more than 100,000 members, to cap compensation. The advance has galvanized the union to collect signatures for similar efforts in San Diego, Chula Vista, and La Mesa.

Union officials say a cap is necessary given that hospital executives' pay increases have outpaced those of hourly workers across the country, widening disparities, according to recent studies. Critics accuse the union of playing politics.

The California Hospital Association, which lobbies for the hospital industry, says the proposal would drive out talent and is meant to exert pressure on hospitals, referencing previous proposals the union has made over the past 10 years.

"This measure won't do anything to reduce health care costs or improve the quality of care in the community," said Jan Emerson-Shea, a spokesperson for the hospital association. "On the contrary, it will only make it more difficult to recruit qualified hospital leaders, including physicians and nurse leaders."

If passed, policy and legal experts warn the cap could draw legal challenges and will likely be hard to implement. For one thing, the measure does not steer the funds that would be saved in cutting top salaries toward lower-wage staff or improving patient care.

Glenn Melnick, a health care economist at the University of Southern California, said he understands SEIU-UHW's motive but questioned whether other policies could better improve health care delivery and lower costs.

"It may be helpful to this group because they’re in negotiations and putting pressure on hospitals and negotiating their contracts, but I think, in the long run, it’s not necessarily good for the health care workers and patients," Melnick said.

According to a Lown Institute study, hospital executives at nonprofit hospitals across the country made on average eight times what was earned by workers without advanced degrees, such as medical records personnel and janitorial staff. Some of the highest-paid CEOs received 60 times the hourly pay of general workers.

The proposed city ordinance caps total executive compensation — which includes salary, health insurance, housing allowances, stocks, and bonuses — at any private health care facility, including hospitals and skilled nursing facilities. If approved, the cap would be enforced through civil lawsuits, and the city attorney's office would get to be first in line to sue. The union estimates the policy change could affect at least 23 hospital executives, managers, and administrators, 13 of them CEOs, and said that's likely an undercount.

Thomas Priselac, for example, CEO of Cedars-Sinai Medical Center, made $5.7 million in 2020, according to the Lown Institute researchers. Scott Reiner, CEO of the Adventist Health system, made $2.4 million that same year. And Rodney Hanners, CEO of USC's Keck Medicine, made $1.4 million. According to the U.S. Census Bureau, the median household income in L.A. from 2017 to 2021 was $69,778, on average.

Yet the measure has holes. The motion targets only private health care facilities, excluding highly paid public hospital executives, such as Ronald Reagan UCLA Medical Center's CEO, Johnese Spisso, who made $1.9 million in 2020, according to Lown Institute.

Ted Seto, a business law professor at Loyola Law School in L.A., said SEIU-UHW's proposal is not only poorly written but filled with ambiguities. For example, it's unclear whether an employee or a hospital would be on the hook for a $1,000-a-day fine. And because health benefits are included in total compensation, Seto said, it's conceivable an administrator who earns $100,000 at a self-insured hospital could be diagnosed with cancer and wind up paying the hospital back for any portion of their treatment exceeding the $450,000 cap. SEIU-UHW says it can't predict how the measure will be interpreted.

And it might not even be legal in some cases. Seto said L.A. likely wouldn't have the power to enforce the cap for current executives because it can't override existing employment contracts.

"I don’t think it’s silly to try to address the huge discrepancies between higher-paid and lower-paid people," Seto said. "But I think that the approach that they’re taking here is really silly."

Ivor Pine, a spokesperson for the city attorney's office, said that the office could not comment on the legality but stated that the council is merely passing the issue to the ballot.

The cap has been proposed by SEIU at least five times in the past 10 years: in California in 2013, 2015, and 2016; in Oregon in 2014; and in Arizona in 2016. The hospital industry has opposed each initiative.

The Los Angeles Times reported in 2013 that the hospital association accused the union of threatening to launch ballot measures aimed at executive pay if the hospital association didn't make it easier for 20,000 workers to organize. Months later, several media outlets reported that SEIU-UHW withdrew its ballot initiative on executive compensation after reaching a deal with the industry.

Renée Saldaña, a spokesperson for SEIU-UHW, rejected the idea that the current CEO cap is a negotiation tactic. "We’ve never shied away from the political process," Saldaña said. "We see this as a way to give voters an opportunity to weigh in on important issues that affect them as well."

The cap is going on the same ballot as another one of the union's bills for a $25 minimum hourly wage for L.A. health care workers. The measure was approved by the City Council in 2022, but the hospital association challenged it, pushing it to the 2024 ballot for a referendum.

"We felt it was appropriate to have both of those conversations at the same time — the lowest-paid health care workers and the CEOs who are paying themselves millions of dollars while fighting tooth and nail to keep health care workers from making a $25 hourly minimum wage," Saldaña said.

State lawmakers are also weighing the union's bill in the legislature to adopt a statewide increase.

Datosha Williams, a member of SEIU-UHW and a Kaiser Permanente service representative in L.A., said the issue of executive compensation is important to her given the industry's resistance to the $25 minimum wage for health workers.

Williams, who has worked at KP for 16 years, earns more than $25 an hour, but she said it's still challenging, as a single mom, to raise a family on her income.

"We have members who are literally homeless," Williams said. "People have told us that they decided to live out of their cars in west L.A. and get gym memberships to take showers to show up to work clean, just so they can afford to live on their own in California."

This article was produced by KFF Health News, which publishes California Healthline, an editorially independent service of the California Health Care Foundation.

This article was reprinted from khn.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.