In 2011, the hospital and research institution of Sloan-Kettering had an operating profit of $406 million even after everything it spent on research and the education of a small army of young cancer doctors. The cash flow comes from more than just drug markups. It also comes from the high pricing enabled by a great brand and an enterprise that has learned how to expand the reach of its brand. One of Sloan-Kettering’s major revenue sources is the outpatient clinics it has been opening around New York City in recent years so that patients don’t have to travel to the busy Upper East Side of Manhattan ....There is a cancer-screening and treatment outpost...in Harlem and a chemotherapy clinic in Brooklyn, and clinical-care facilities can also be found in five of the New York City metropolitan area’s wealthier suburbs....Building on the deserved allure of the Sloan-Kettering brand, these outposts eat into the profits of area hospitals, which would otherwise be providing the same high-margin outpatient cancer care either on the basis of what their own doctors prescribed or according to instructions from Sloan-Kettering’s specialists.... Sloan-Kettering’s foray beyond the Upper East Side of Manhattan also represents a rare outbreak of competition in the current hospital marketplace.Sloan-Kettering may be fishing for business in these wealthy suburbs, but it does have a financial-aid process that is both proactive and well publicized to patients seeking care....That kind of brand strength produces not only lavish cash flow but also lavish incomes for the nondoctors who work to generate it. Six Sloan-Kettering administrators made salaries of over $1 million in 2010, the most recent year for which the hospital filed its nonprofit tax return.... Including those six, 14 made over $500,000. Compared with their peers at equally venerable nonprofits, these executives are comfortably ensconced in a medical ecosystem that’s in a world of its own. For example, Sloan-Kettering listed two development-office executives, or fundraisers, as making $1,483,000 and $844,000.
As this article points out, Sloan-Kettering is taking advantage of its brand by expanding its cancer care services in the New York area and grabbing these high-profit patients from other health systems. The New York hospital market is highly competitive so this may just be the nature of the business in the area (see: NYU Longone Tries to Claw Back Market Share after the Sandy Debacle ).
I am sure that there will be various opinions among the readers of this blog as to whether fourteen of the Sloan-Kettering executives should be compensated with salaries of more than a half-million dollars each. We have arrived at a point where many U.S. hospital executives are among some of the highest wage earners in the country. This may be justified on the basis of the responsibility that they bear. What galls me, though, is the non-profit status of many of these institutions. I posted a note five years ago about non-profit hospitals drifting from their mission (see: Non-Profit Hospitals Drift from Their Mission Despite Subsidies ). Apparently institutions like Sloan-Kettering are still able to convince the IRS that they qualify as a non-profit despite the very high salaries of their executive officers and the aggressive way in which they market themselves.