Thursday, February 14, 2013

Carolinas Healthcare System Pays Executives Even More

In May, 2012, we discussed the contrast between the outsize compensation given to top executives of Carolinas Healthcare System, a large tax-exempt public hospital authority, and the apparent failure of the system to fulfill it promise to provide community care.  Now we can update that story.

2012 Executive Compensation

The Charlotte Observer reported on the compensation given to top executives at the Carolinas Health Care System in 2012:

The top executive at Carolinas HealthCare System received $4.76 million in 2012 compensation, a 12 percent increase over 2011, as the system celebrated a profitable year and met all of its systemwide performance goals, the system announced.

CEO Michael Tarwater, 59, who has led the $7.5 billion nonprofit system for more than 10 years, received a salary of $1.1 million, two bonuses totaling $2.8 million, and other compensation, including retirement and health benefits, of $795,724.

The top 10 executives at Carolinas HealthCare each received more than $1 million in total compensation. Most received increases of more than 8 percent.

A more detailed list, which included the rate of increase since 2011::

Michael Tarwater, CEO: $4,760,026 – 12.36 percent increase
Joseph Piemont, president and chief operating officer: $2,880,926 – 13.57 percent increase
Greg Gombar, chief financial officer: $1,898,027 – 8.35 percent increase
Laurence Hinsdale, executive vice president: $1,844,413 – 8.92 percent increase
Paul Franz, executive vice president: $1,704,671 – 8.17 percent increase
Dennis Phillips, executive vice president: $1,420,521 – 5.14 percent increase
Dr. Roger Ray, chief medical officer: $1,315,148 – 21.76 percent increase
John Knox, chief administrative officer: $1,296,185 – 8.24 percent increase
Debra Plousha Moore, executive vice president: $1.145,357 – increase not available
Russell Guerin, executive vice president: $1,141,171 million – 7.56 percent increase

Read more here: http://www.charlotteobserver.com/2013/02/06/3835851/charlotte-hospital-pay.html#storylink=cpy

Read more here: http://www.charlotteobserver.com/2013/02/06/3835851/charlotte-hospital-pay.html#storylink=cpy

Also here were the compensation figures for some leaders of individual hospitals within the system:

Others in Carolinas HealthCare System - 2012
• Spencer Lilly, president, Carolinas Medical Center: $633,326
• Robert Larrison, president, Carolinas Rehabilitation: $348,976
• Douglas Roush, president, CMC-Mercy: $262,745
• Christopher Hummer, president, CMC-Pineville: $549,616
• William Leonard, president, CMC-University: $378,369
• Phyllis Wingate-Jones, president, CMC-NorthEast: $761,160
• Peter Acker, president, CMC-Lincoln: $385,847
• Michael Lutes, president, CMC-Union: $488,427

Read more here: http://www.charlotteobserver.com/2013/02/06/3835851/charlotte-hospital-pay.html#storylink=cpy

The Context

The context is that Carolinas Healthcare is a large tax-exempt public hospital system that claims that it "works to improve and enhance the overall health and wellbeing of its communities" according to its web-site.  However, there have been accusations, for example here by "Jessica Curtis, director of the Hospital Accountability Project for Community Catalyst in Boston," that is has been

'...sending very low income patients to collections and suing them as well.'

The Observer and The News & Observer reported last year that during the five years ending in 2010, North Carolina hospitals filed more than 40,000 lawsuits. Most of the suits were filed by Carolinas HealthCare.

Note that we discussed the contrast between this hospital system's public nature and aspirational statements about serving the community on one had, and its oversize executive compensation on the other hand here.  Since then, executive compensation has only gone up.

The Usual Talking Points for Justification

Of course, when asked, defenders of the hospital system gave the stock justifications.  For example,

Carolinas HealthCare officials said executive compensation is 'performance based' and reflects the system’s growth. 

The Observer found a health care executive compensation consultant to make the usual arguments about the need to pay market rates to prevent supposedly talented executives from being recruited elsewhere:

 Consultants who assist hospitals in setting executive compensation say they compare peers at hospital systems of comparable size, complexity and performance.

'If , he’s going to get paid higher in the range. That individual is very vulnerable to being recruited away' said Bob Erra, president of Integrated Healthcare Strategies.

'The last thing a compensation committee wants to do is to lose a leader over pay,' said Erra, whose Minneapolis-based firm works with Novant Health but not Carolinas HealthCare.

 Just as we mentioned in our most recent post, whenever anyone bothers to try to justify extravagant executive compensation at hospitals, and for that matter, most other health care organizations throughout the US, they seem to repeat the same set of talking points.    We first listed the talking points here, and then provided additional examples of their use here, here and here.   The talking points are:
-  we pay what everyone else pays
-  CEOs work hard and are brilliant, and so deserve high pay
-  high pay is needed to attract and retain competent, if not brilliant people.



Note that without specific evidence to back them up, the first two talking points at least are logical fallacies.  The first is an appeal to common practice.  The second is an appeal to authority.

None of the examples of these talking points we have seen so far explain why these apply to CEOs and other top hired managers, but not to other kinds of employees.

So it should be no surprise that the justifications for the largess to hospital executives at Carolinas follow the talking points yet again.

-  We Pay What Everyone Else Pays => "they compare peers at hospital systems of comparable size, complexity and performance."  Note further that it is hard to believe the comparisons were only to other public hospital systems, that is, hospital systems run by local government

- CEOs Work Hard and Are Brilliant => "(the CEO) is a high performer...."  Note further that as usual no evidence of the CEO's specific performance was offered.

- High Pay Needed for Retention => "That individual is very vulnerable to being recruited away."  Note that as we wrote recently, most CEOs are recruited from within the organization, and no specific evidence that this specific CEO was particularly likely to be recruited away was offered. 

So as is usual, underlying these talking points there was no evidence, nor arguments that would make them more logical.


Summary: the More Things Change

The more they stay the same.  Thus this seems to be yet another example of how top managers almost always now seem able to personally profit from their positions of trust.  In this particular example, however, these were managers of a public organization, so it may be possible that public pressure could make them more accountable and hold them to more reasonable pay.  

So to repeat my conclusions from 2012....  The governance of this organization, like that of many others we have discussed, needs to regain accountability, transparency, integrity, and ethics. It must insist that the leaders it hires uphold the mission ahead of other concerns, particularly personal enrichment. It must provide these leaders with realistic incentives based on how well they uphold this mission, not on revenue or operating margin.

Until such changes are accomplished, expect this hospital system, like many other health care organizations, to contribute only to our ever rising prices, declining access, and stagnating health care quality.

5 comments:

Anonymous said...

As they say, patients are simply grist for the cash registers at #bighospital.

Judy B said...

It just continues. How much could medical costs be reduced if these executives were not paid so much? Perhaps ordinary people could afford medical care without fear of bankruptcy!

Roy M. Poses MD said...

Judy B,

Thanks.

I think that the amount of money siphoned out of the health care system by the top insiders and cronies is important.

But even more important is the effect of these perverse incentives on how they lead, and the effect of the prospect of these incentives on who becomes the leaders.

Judy B said...

Agree, I think that is what is behind so many doctors saying that they are underpaid (despite 6 figure incomes). It sets an example and a precedent....

pHenomenalhairstylist said...

Carolinas Healthcare System is North Carolina based, not California. The cost of living in California may justify multi-million dollar salaries and bonuses of healthcare executives. Who does CHS compare their salaries to in the SouthEast? UNC Hospital? I am just curious.