Monday, December 14, 2009

The $9.8 Million Dollar Man

We seem to have a new candidate for the award for best-paid CEO of a not-for-profit academic medical center, as reported in the New York Post,
Wall Streeters aren't the only ones raking in big bonuses during tough economic times.

Hospital presidents and CEOs also collect fat bonuses and 'incentive payments,' even as health-care systems cry poverty, claiming they struggle to break even against government cutbacks, tightwad insurers and skyrocketing costs.

While warning of layoffs and slashed patient services, many hospitals shower their top execs and department heads with bonuses and perks. They include housing allowances, chauffeurs, first-class air travel, tuition for their kids and country-club memberships.

Under new IRS rules, the extras are disclosed for the first time in recently filed 2008 tax records obtained by The Post.

The filings for the city's biggest and most prestigious private, tax-exempt hospitals show at least a dozen CEOs get compensation of $1 million and up. Some also cash in early on million-dollar pre-retirement payouts while on the job.

Dr. Herbert Pardes, who runs the New York-Presbyterian Hospital and its health-care system -- the city's largest private hospital network -- received a $1 million bonus in 2008 on top of his $1.67 million salary.

The hospital has a 'pay for performance' philosophy but says even though Pardes met his goals, his bonus was smaller than 2007's to 'reflect the current external environment.'

But Pardes' compensation totaled $9.8 million in 2008 because he vested in a retirement plan that will pay $6.8 million when he leaves in 2011. He also received a $93,500 housing allowance and the use of a car and driver.

The Post article also listed two other hospital CEOs who got over $4.5 million in compensation, and several other top executives at other hospitals who got substantial compensation despite the hospitals' financial distress or accusations of unethical behavior.  On the other hand, the CEO of the city's Health and Hospital Corporation, with a budget of $6.3 million, got only $291,000.

Note that Dr Pardes' total compensation was more than double the compensation for a Boston medical center CEO that I thought was so outlandish back in September, 2009.

So here is much more evidence about the continually inflating health care bubble.  Not only do executives of big, for-profit drug, device, biotechnology and health insurance companies make seven and eight figure salaries, now it appears executives of ostensibly not-for-profit, charitable organizations can also make this much. 

Is it possible that at least Dr Pardes' compensation was a fluke, related to a one-time retirement payment?

The answer appears to be negative.  The New York - Presbyterian Hospital's 2007 US Internal Revenue Service (IRS) form 990, which was organized somewhat differently and may have used somewhat different definitions than the 2008 form from which the Post reporters apprently got their information, showed Dr Pardes total compensation to be $4,736,824 plus a $1,433,761 contribution to employee benefit plans and deferred retirement plans in that year. In addition, in 2007, (apparently former) executive Vice President Michael A Berman, MD received $5,949,092 in compensation plus $31,830, current Executive Vice President and Chief Operating Officer Steven J Corwin MD received $2,671,747 plus $455,304, Senior Vice President and Chief Financial Officer and Treasurer Phillis RF Lantos received $2,481,044 plus $336,284, Senior Vice President and Chief Operating Officer Robert Kelly received $1,538,412 plus $271,641, Senior Vice President and Chief Operating Officer Cynthia N Sparer received $1,370,541 plus $307,259, Senior Vice President and Senior Legal Officer Maxine Fass Esq received $1,337,354 plus $257.06, Senior Vice President, Finance Dov Schwartzben received $1,314,960 plus $173,848, Senior Vice President and Chief Nursing Officer Wilhelmina Manzano received $1,218,966 plus $159,555.  In summary, in 2007, the medical center paid at least 10 current and former executives each substantially more than $1 million a year.

By my calculations, the medical center paid these ten executives over $26 million a year, approximately equal to 25% of the center's fund excess (e.g., profit equivalent), of slightly over$106 million.  These ten executives received nearly 1% of the entire 16,850 employee institution's budget.  Furthermore, note that in the medical center's 2007 expense statement, general and administrative expenses, over $675 million, made up about 24% of the center's total expenses. 

So it appears that gigantic compensation for New York - Presbyterian Hospital executives, which is outsize both in comparison to the Hospital's fund excess and total budget, is part of a long-term trend
The Post quoted Brian Conway of the Greater New York Hospital Association with this excuse:
There are thousands of 20-somethings on Wall Street making millions who don't have anywhere near the responsibilities or skills of New York hospital CEOs.

This fits in our catalog of logical fallacies.  It is an appeal to common practice.  Of course, the particular practice to which Mr Conway appealed is the exaggerated executive compensation in finance that many believe was a cause of the global financial melt-down, aka great recession.  One could also argue that not one Wall Street executive has the life and death responsibilities of the typical practicing primary care physician.  I doubt Mr Conway would try to argue that Dr Pardes' job requires 40 times the skill of full-time practicing primary care or cognitive physician.

Instead, executive compensation for hospital CEOs seems best described as Prof Mintzberg described compensation for finance CEOs, "All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit."  As it did in finance, compensation madness is likely to keep the health care bubble inflating until it bursts, with the expected adverse consequences.  Meanwhile, I say again, if health care reformers really care about improving access and controlling costs, they will have to have the courage to confront the powerful and self-interested leaders who benefit so well from their previously mission-driven organizations. 


Anonymous said...

In my community the nonprofit hospital that owns a for profit insurance company will not release the compensation package of the senior staff for competitive reasons.


Steve Lucas

Anonymous said...

The Post quoted Brian Conway of the Greater New York Hospital Association with this excuse: There are thousands of 20-somethings on Wall Street making millions who don't have anywhere near the responsibilities or skills of New York hospital CEOs. This fits in our catalog of logical fallacies. It is an appeal to common practice.

I wonder if Mr. Conway has the brains to even understand what you are talking about.

professor cz said...

In the spring of 2007 several organizations demonstrated outside the annual shareholders meeting of United Health Group the largest HMO in the U.S. to "decry the gap between need and greed.” United Health Group CEO William McGuire, and his replacement Stephen Helmsley, as well as other Minnesota HMO executives, took billions in stock options. McGuire was the highest-paid CEO in Minnesota history, with stock options totaling $2 billion. Helmsley, who replaced McGuire, has stock options in excess of $750 million. In 2009 Helmsley’s compensation came to $57,000 an hour. McGuire and other executives who were ousted in October, 2006, are under criminal investigation due to stock option backdating fraud. According to Herbert Sacks past President of the American Psychiatric Association, when asked where does this money come from, he replied “from the denial and interruption of…patient care.”
Not only are CEO salaries excessive but so are their Senior VPs', VPs', and board members. For example, in 2007, the top 6 health plan boards paid themselves a whopping $277,998,793.
Estimates of the compensation cost for health care CEO’s and their executives total about $7 to 10 billion a year. If their pay was reduced by 80 percent it would cover health insurance for 500,000 families enrolled in a government insurance program at $10,000 per year per family. Also, if health care was nationalized the administrative savings alone would be enough to provide health care coverage for the one million uninsured in America. One third of every dollar spent on health care goes to administrative overhead and half of that goes to executives. According to the Security and Exchange Commission between 2000 and 2007 the 10 largest publicly traded health insurance corporations increased their profits 428 percent from $2.8 billion to $12.9 billion, as premiums increased 87 percent.
Health care institutions have lost the confidence of a public that once valued their altruistic mission. These institutions are viewed by the public as paragons of greed and apathy and many believe that executive pay is a significant part of the health care problem. Patrick Soon-Shiong the CEO of APP Pharmaceuticals is a prim example. He stepped down as CEO in the spring of 2008, but the former surgeon still held 83 percent of the company's shares. In July, he agreed to sell APP to a German firm. The sale finalized two months later for an initial $3.7 billion cash payment as a result Soon-Shiong’s personal fortune gain was $3 billion. Shame on Dr. Soon-Shiong.

Roy M. Poses MD said...

Professor CZ -
Note that we most recently posted about Dr William McGuire and his back-dated UnitedHealth stock options here:

Anonymous said...

It is absurd that NY-Presbyterian hospital pays 10 executive employees over $26 million dollars, when huge hospitals like them are cutting back payroll and job cuts for nurses, who are essentially responsible for patient care at their institutions. Their extreme greed is disgusting and they could be using a fraction of their executive salaries to hire more nurses who continue to be overworked and underpaid. When economic times are tough at hospitals, payroll and nursing jobs are the first to go, and as a result patient care is severely compromised! Yes- Doctors are important and save lives, but if you are a patient in a hospital like NY Columbia Presbyterian, you better hope to god that you have an excellent nurse looking out for you because I know first hand that the MDs do NOT see their patients often, rather PAs and RNs see the patients daily. Patient lives are literally in the hands of the nurses and it does not benefit anyone to have a nurse with 10 other patients who is too busy to see you more than a few times per day. Outrageous greed will unfortunately be the demise of this once prestigious institution as well as it was for Wall St.

Anonymous said...

Having worked at NYP for a number of years and being privileged to certain information, I know that this organization does engage in some activities that are ethically questionable. I've witnessed first hand some of the decisions made by some named in the article and know that these individuals are not always above board when making certain decisions. One day the truth will come to light about what goes on behind the walls of this powerful organization. Mind you, it's a great place to work at as long as you don't oppose the higher powers there. There are hundreds of honest, hardworking employees at all levels who really care about the institution but there are a few ethically challenged execs who will ultimately cause the organization public embarassment. I hope they leave before this happens.

Anonymous said...

This hospital is a joke. I lost a friend there who was literally neglected for days following an elective surgery. He had the luxury of excellent insurance and could have gone any where in the US. Unfortunately, he wanted to go to NYP and he never made it out of there. He developed a common and obvious post op complication that was overlooked by his nurses, PA and MDs. He died from that complication. Corrupt hospital systems/execs such as at NYP would rather pay out millions of dollars in avoidable lawsuits than actually evaluate the care they provide to patients and make changes within their organization to promote patient safety. The place is too big, too overcrowded, impersonal and poorly run. As a patient you are just a number. HOT shot executives who make such a significant fortune should actually work for a living and look into why patients are dying from very preventable causes or else this place will sink faster than they can continue to cash in their hefty paychecks.