Non-Profit Hospital Governance, Conduct, and CEO Pay

We investigate whether the membership of a non-profit hospital's CEO on its board of directors is associated with CEO pay and several measures of hospital performance, including price, operating margin, quality, and service to low-income patients. Although the consequences of CEO board membership for for-profit firms have been studied extensively, the consequences for non-profits in general, and non-profit hospitals in particular, have received less attention. Because most hospitals are non-profit and non-profit hospital prices have increased rapidly over the past 20 years, this gap is important. We use regression models to estimate the association between various measures of hospital performance and CEO board membership, holding constant fixed effects denoting the hospital's county of location, hospital board size, and other hospital characteristics. We find a strong positive association between CEO board membership and non-profit hospital prices, operating margins, and CEO pay, with a weaker positive (negative) association between CEO board membership and quality (service to low-income patients). We conclude that non-profit hospitals' CEO board membership is likely associated with increases in agency costs due to a lack of separation between management and control.