Friday, December 12, 2014

Again, the Hospital CEO as Scrooge - Erlanger CEO and Other Top Hired Managers Get Bonuses Months After They Froze Employees' Paid Time Off

Less than two weeks ago, we discussed a series of cases in which there was a marked contrast between how well top hired managers of non-profit hospitals were doing, and how their institutions were doing. 

Now another vivid example of this problem as appeared, affecting Erlanger Health System,  a non-profit hospital system in Tennessee that has recently seen hard times.

Freezing Paid Time Off

In March, 2014, as reported by the (Chattanooga, TN) Time Free Press,

Erlanger Health System's latest strategy to staunch financial losses has hit its most personal note yet, as hospital executives have decided to freeze the paid time off accruals for 4,000 employees from now until July.

Erlanger employees used the words 'defeated,' 'distressed' and 'betrayed' when describing staff reactions to the cuts, announced Friday.

The sudden decision shows just how high stakes are becoming at the Chattanooga public hospital. Erlanger is $3.8 million in the red this fiscal year and is also feeling the weight of roughly $14 million in state, federal and insurance cuts this year, hospital executives say.

At that time, hospital managers emphasized the fairness of the freeze because it would be applied across the board,

 No one -- including executive staff and doctors-- will be exempt from the freeze, which will span nine pay periods and is expected to save the hospital $5.4 million, said hospital Chief Administrative Officer Gregg Gentry.


 Of all potential cuts discussed -- including layoffs -- the executive staff said the decision to temporarily freeze paid time off would have the most impact on the budget while having the 'least impact' on employees.

The result means 'everyone has to sacrifice' to make those goals, [CEO Kevin] Spiegel said.

The freeze may have so badly affected employee morale because it came on top of other changes imposed on employees,

 Erlanger has already made significant changes to employees' benefits this year -- phasing out its traditional pension plan in favor of 401(k)-like accounts; changing how paid leave is structured and approved; and increasing what retirees pay toward their health insurance.

However, there was hope that perhaps the freeze would not last long, since hospital managers had located some government money that might be obtained to relieve the deficit.

More Money, So the First Thing to Do is Give Bonuses to Top Hired Managers

By December, 2014, Erlanger finances had at least temporarily improved, partially because of access to the government money.  So, as again reported by the Times Free Press, the first thing the hospital system board did was to give bonuses to the managers who had imposed all those cuts on other employees.

At the end of a year that started with freezing employees' vacation time and warnings of financial crisis, Erlanger Health System will award $1.7 million in bonuses to its top management for financial performance.

Erlanger trustees voted Thursday to pay the incentives, which were determined by a series of benchmarks set last year. The public hospital's financial turnaround -- driven largely by a $19 million infusion of federal money -- will enable the payout averaging $17,100 to 99 managers.

Erlanger CEO Kevin Spiegel will collect $234,669 in bonus pay, bringing his total compensation this year to $914,669. Trustees also voted to give Spiegel a 10 percent raise next year, upping his base pay to $748,000, and approved a 2 percent nonbudgeted pay raise for hospital employees.

Sometimes, you just cannot make this stuff up. The CEO gets a 10% increase in base pay, and almost a quarter-million dollar bonus, while regular employees may get a 2% increase after enduring vacation time freezes, and various reductions in benefits.

Furthermore, while money was saved by supposedly across the board cuts, reducing the benefits of hard working employees, including health professionals who took direct care of patients, and revenues were increased by some relatively easily found money from the federal government, the hospital system board seemed to attribute the sudden success only to the top hired managers.

 'Management has performed exceedingly well,' said board Chairman Donnie Hutcherson, [a certified public accountant, and partner in an accounting firm] who added that the compensation is comparable to that of other hospitals such as Erlanger.  'This is well deserved. They have put in long, long hours.'

He explicitly did not seem to consider whether other Erlanger employees, especially doctors, nurses, and other health professionals also were putting in long hours, and working diligently under difficult circumstances.

 One Erlanger nurse, who asked not to be named for fear of losing her job, said the management incentives 'have come at the expense of their employees and the sacrifices they have made.'

'[Employees] have had vacation time taken away and are paying more for benefits. They are routinely overworked and understaffed,' the nurse said Friday. 'The morale among staff and doctors is the lowest I have ever witnessed. If that constitutes a bonus, obviously my belief system of what I think is morally and ethically right and wrong is not shared by the management or board members at Erlanger.'
Thus this was a strikingly bizarre use of one of the talking points that are often used to justify high and ever increasing compensation for top hired managers.  Managers are often hyped as "brilliant," and "hard working," without any explicit comparison to any other employees, especially to health care professionals who often go through much more rigorous training, and may work far longer hours than managers, administrators, bureaucrats, or executives.  (Look here)

Previous Disconnects Between Executive Compensation and Hospital Finances

In fact, discrepancies between how hired executives are treated and how the hospital system is faring financially are old hat for the Erlanger Health System.  In 2012, we noted how the board voted to give a previous CEO a golden parachute soon after the system first began running a deficit, and after unpaid work days were imposed on other employee.  After further financial deterioration, the board voted to put the severance package on hold.  However, this 2013 Times Free-Press article suggestsd that CEO ultimately received it, paid out over 15 months.  Furthermore, as we wrote in 2011, the system board did something similar in 2009, giving the CEO bonuses despite financial losses and a bond default.

This history did not seem to inform the board's current decision making, or perhaps it did inform the board that they could get away with such decisions?

Once Again, the Board Temporarily Backs Off Under Public Pressure

The Times Free-Press reported today, December 12, 2014, that once again the board has retreated,at least for a while, 

Facing criticism and questions from state lawmakers after voting to award executives $1.7 million in bonuses, Erlanger Health System officials said Thursday night they will put the payments on hold and review their actions.

Trustees for the public hospital voted Dec. 4 to approve bonuses for 99 managers, including more than $234,000 for CEO Kevin Spiegel.

The Hamilton County legislative delegation -- which appointed three trustees to the 11-member board -- harshly criticized the move, saying the hospital had not proven it could afford such bonuses after ending the last three years in the red and relying on a federal funding pool to end this year with a profit.

Whether or not the bonuses will be cancelled, reduced, or merely delayed, however, still is unclear.


In US health care, the top managers/ administrators/ bureaucrats/ executives - whatever they should be called - continue to prosper ever more mightily as the people who actually take care of patients seem to work harder and harder for less and less. This is the health care version of the rising income inequality that the US public is starting to notice.  It seems all the more unfair in health care, since the income inequality is clearly between managers/ administrators/ bureaucrats/ executives who are mostly generic, that is, not specifically trained or experienced in health care or biomedical science, and the doctors, nurses, therapists, and technicians who actually take care of patients.  (For example, the CEO of Erlanger Health Systems, Mr Kevin Spiegel, has an MBA in Health Care Administration from Adelphi, and no obvious training or experience in actual patient care, nor biomedical science.)

As we have noted before, most recently here, the favored treatment of the managers/ etc ... is often justified by other managers on the boards of trustees who are supposed to exercise stewardship over health care organizations, and by the public relations flacks, marketers and lawyers employed by the self-same managers.  The justifications usually consist of repetitions of the same stale talking points, as if in a vacuum.  Note above that the Erlanger board member justified the bonuses by extolling the managers' performance and long hours, totally ignoring how many other hospital system employes worked hard and well to keep the system above water.

Thus, like hired managers in the larger economy, non-profit hospital managers have become "value extractors."  The opportunity to extract value has become a major driver of managerial decision making.  And this decision making is probably the major reason our health care system is so expensive and inaccessible, and why it provides such mediocre care for so much money. 

One wonders how long the people who actually do the work in health care will suffer the value extraction to continue?

So to repeat, true health care reform would put in place leadership that understands the health care context, upholds health care professionals' values, and puts patients' and the public's health ahead of extraneous, particularly short-term financial concerns. We need health care governance that holds health care leaders accountable, and ensures their transparency, integrity and honesty.

But this sort of reform would challenge the interests of managers who are getting very rich off the current system.  So I am afraid the US may end up going far down this final common pathway before enough people manifest enough strength to make real changes.


Anonymous said...


Judy B said...

I am afraid that this bad (corrupt?) behavior will continue as there do not seem to be enough people who are outraged, brave enough to say something and willing to follow through on their words!

Anonymous said...

Yes. Bad, corrupt and downright cold and callous towards the real mission of healthcare. Perverted? Warped?

Anonymous said...

It's likely that the bonuses will "HAVE" to be paid due to contractual obligations. Here is the legal argument: "I had a bonus structure in my contract, it had certain provisions. You indicated I met those provisions in your earlier vote. Please pay me what you owe me."

Sound legal argument, even if the provisions were somewhat generalized. Once you say you met the provisions, you have a hard time taking it back without evidence.

Of course these guys have the cash to buy good lawyers. Your average consumer or employee doesn't have that kind of cash.

Of course the cash comes from things the lawyers did initially in the contract, so its a circle of shakedown from lawyers.

Hey, they make the laws, what do you expect?

Roy M. Poses MD said...

Anonymous of !5 December, 10:15 AM -

I agree that the excuse certainly was "we had to fulfill the contract." That is a convenient excuse, but I think I would first think about blaming the person(s) who signed the contract for the hospital.

I would not first think to blame the lawyers first.

Someone within the hospital signed the contract. So either the person who did so knew that it might obligate the hospital to pay the managers a lot even in circumstances in which that would not look good, or that person was incompetent, or just possibly that person was fooled by the lawyers. But most likely, it was the first alternative.

Lawyers tend to do what their clients want.

Furthermore, contracts are not absolute and not enforced by death. The hospital could have chosen to contest the contract, especially if it was possible that the person who signed it was incompetent or corrupt, or that the lawyers somehow fooled that person. But no one at the hospital seemed to protest that there was something wrong with the contract.

Afraid said...

Roy, I think you underestimate the extent to which lawyers have taken over large healthcare systems. I was surprised to see the sons of the local managing partners of law firms all though the legal departments of hospitals. At first I didn't put two plus two together.

The tactic was spelled out to me by a quitam lawyer (the only real adversary left).

Here is the scheme - put your kids and friends in the medical center legal department, this gives you control. The managers won't do what the legal folks tell them should not be done. Once you have control, you milk the system.

The lawyers take full time salaries and they run the board, lawyers scare the employees. Lawyers make the HR rules and employment agreements. Lawyers keep quality problems underwrap. Look at what they do to Scot. The managers don't do that, they are simply well paid figureheads.

The amount of money being paid for services is the real prize, not a few million to the head honcho and his capos.

Anonymous said...

No one in any position of power signs a contract without the lawyer's approval.

Roy M. Poses MD said...


It's an interesting theory.

But is there any evidence that it is true?

I am concerned particularly given that it appears to let all the managers/ administrators / bureaucrats/ executives off the hook, and blames it all on the lawyers.

The theory that blames it all on the lawyers may look good to some doctors, who often seem to have visceral dislike for lawyers. But it also may serve the interests of the managers/ administrators/ executives/ bureaucrats. And there are lots more of them in health care than lawyers.

Just wondering?

Afraid said...

My anecdotal observation Roy done at one of America's preeminent academic medical centers/monopolists.

Unless each one of us at medical institutions start to match up the lawyers last names with the local law firms, we'd never know if scions of partners are infesting medical center legal departments.

I was told directly by one that this is the strategy, but I guess that doesn't count.

And no, I don't absolve the administrators, nor do I absolve doctors. But I think the lawyers are behind it all because the immoral and unethical is being made legal. How else does that happen without lawyers?