Tuesday, August 31, 2010

More Hospital CEOs Join the Millionaire's Club, This Time in Baltimore

As we predicted, more stringent requirements by the US Internal Revenue Service for financial reporting by not-for-profit organizations, including hospitals and hospital systems, have produced an enlarging parade of revelations of obese pay packages for hospital leaders.  The latest report came out courtesy the Baltimore Sun:
Baltimore-area hospital CEOs and presidents boast seven-figure salaries, club and gym memberships, and paid financial planning and tax services as part of compensation packages from their nonprofit employers.

According to a survey of Baltimore-area hospitals, the highest-ranking executives were often the recipients of financial payouts and perquisites that many private-sector companies have abandoned in the face of intense public debate about excessive CEO pay. The heads of hospital systems, which oversee many facilities, tended to make the biggest salaries and incentives. Eight top executives made more than $1 million, and the largest CEO pay package totaled $7.8 million.

The article described some of the more corpulent compensation packages.

St Joseph Medical Center

One was from St Joseph Medical Center, already under fire for for the lavish use of cardiac procedures by one of its staff doctors:
St. Joseph Medical Center, a member of Catholic Health Initiatives, said in a statement that it offers a level of compensation that allows it to compete for talent. The hospital paid former CEO John K. Tolmie $846,128 in salary, bonus and other pay, the latest IRS filing shows.

'Hospital CEOs have one of the most demanding, high-pressure jobs in the nation, dealing on a daily basis with everything from ever-changing regulations to workforce shortages and lower reimbursement for services,' the hospital statement said.

Tolmie resigned in May 2009 after being on administrative leave to avoid a conflict of interest during a federal investigation. Since then, one of the hospital's cardiologists, Dr. Mark G. Midei, has been accused of performing hundreds of unnecessary heart procedures

Mercy Medical Center:
Mercy Medical Center head Thomas Mullen made $1.08 million in compensation during fiscal 2009. The hospital said in a statement that it 'believes this compensation to be appropriate given the responsibilities of serving as a president and CEO of a $520 million health system.'

Johns Hopkins
One might expect the CEO of the Johns Hopkins hospital system to be paid well, but he was paid particularly well since he also seemed to have the full-time, separately paid position of dean of the medical school:
Edward Miller, CEO of Johns Hopkins Medicine, made $729,297. He also gets paid separately for his position as dean of the School of Medicine at Johns Hopkins University. The fiscal 2009 filing for the medical school was not yet available. But Miller collected $1.4 million for that job the year before.

A chart of the compensation of all CEOs is here. As noted in the article, eight CEOs got more than $1 million, and another three got over $900,000.

A Baltimore Sun commentator noted that not only did the CEOs get large salaries, but:
Close to a dozen had personal dues for 'social clubs' financed by your charitable donations, tax dollars and health insurance premiums. Many enjoy lavish and opaque executive retirement plans that also put upward pressure on the medical costs that threaten government budgets and the economy.

As we have noted before, he pointed out that it is unseemly for not-for-profit hospitals, which are supposed to be devoted to the mission of caring for patients, usually explicitly including poor patients, and which are funded to a great extent by government programs and the income from donations, to make millionaires out of their top hired executives:
Hospitals aren't Goldman Sachs. They're not Stanley Black & Decker or Microsoft, either. They're nonprofits, getting charitable donations and huge government subsidies beyond all the loot they rake in from Medicare and Medicaid. If the newly required disclosures on the IRS 'Form 990' put pressure on hospital boards and CEOs to tone it down, it's about time.

People who donate to hospitals, thinking they are doing so to provide better health care, or to help out the less fortunate, may be surprised to hear about the hospital CEO as millionaire:
For some hospital donors, the revelations are transparently shocking.

'Donors are completely outraged,' says Ken Berger, president of Charity Navigator, an organization that helps people make smart giving choices. 'Donors tell us more than anything that they're just blown away by the fact that an organization that is a charity basically is creating millionaires in its leadership.'

'The most common remark we get is this: 'I've been giving to this organization for years, and I can't believe what the CEO is making, and I will never support this organization again.' '

I am glad that newspaper commentators are getting even more wound up on this issue than I have:
Why any hospital executive should need a company-paid club membership is a deep mystery. It can't be to woo potential donors. No donor with half a brain wants to endow an institution so employees can play golf with her money.

It shouldn't be to wine and dine business prospects. A hospital's business is collecting revenue for medical care. To be frank, there's too much of that going on already for the good of the country's wallet. Hospitals are far too focused on sales and marketing and not enough on delivering quality, efficient care.

Hospital trustees on any compensation committee can deliver a windy treatise about how pay for senior executives is ethical, carefully considered and worth every penny.

It's all a crock. The 'independent' compensation consultants that boards rely on are often referred by the CEO himself. The consultants know they can't make waves, or they won't get hired to rubber-stamp executive pay at other hospitals. To justify high pay, boards and consultants often use unrealistic comparisons from much bigger institutions or from the for-profit sector.

It doesn't take $1 million to get a great boss.

But it gets worse. People who love to play golf on company money, and feel entitled to make a million or more are not the right people to lead organizations that are supposed to focus first on health care, including health care for the less fortunate. Moreover, people who get used to the pay and perks are likely to focus on keeping them coming, rather than the mission, even if they started out with some devotion to the mission.  Furthermore, the excessive pay and perks are perverse incentives, telling the CEOs that they are wonderful people, they can do no wrong, and should stand for no criticism, all further diverting them from what they really are supposed to be doing: upholding the mission.

As we have said many times before, true health care reform would encourage leadership of health care who understand health care and care about its mission, rather than those who see a quick way to make a small fortune.


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Marc said...

I'm a bit puzzled by this (I'm based in the UK). Don't non-profit organisations in the US have at least a board of trustees or governors who approve executive pay? Are these CEOs not accountable?

Roy M. Poses MD said...


All such organizations have boards of trustees or the like. The CEOs are supposed to be accountable to these boards.

However, the boards are often made up of cronies of the CEOs, people who have various conflicts of interest, including those who have business relationships with the hospitals, clueless people who see boards as social clubs, CEOs and other business management types who may be interested in increasing the power of CEOs as a group, etc, etc.

The composition of these boards, and their devotion to the organizations' mission, is another important, related problem.

Evelyn Pringle said...

The wife of the guy in the White House is an excellent example of how people get rich off having cronies on boards that oversee salaries.

Within months of Obama becoming a US Senator, his wife's salary at a non-profit medical facility doubled to about $350,000.

Valerie Jarrett, one of the president's current top aides, headed the board that oversaw Michelle's pay package. If memory serves me right, I think Jarrett even played a big part in getting Michelle the job to begin with.

InformaticsMD said...

From the Baltimore Sun article:

At GBMC, former CEO Laurence Merlis was compensated $989,624. While other executives received expense accounts of up to $5,000 for club memberships, tuition and health equipment, Merlis got his own discretionary spending account. "The amount of the account was established in his employment agreement and is not required to be substantiated," according to the IRS filing. Merlis retired in January.

Actually, this is incorrect. Mr. Merlis did not retire; he took a role as CEO at a local hospital here in PA.

It was to him whom I wrote a letter in April 2010 about the dangers I was seeing in his new hospital's EMRs ... EMR's that in May 2010 were apparently a root cause of a grave injury to my own mother, through 'disappearance' of a critical medication that started at triage and in the ED, followed by a complete failure of the medication reconciliation process upstream in part due to apparent overconfidence in computers.

-- SS

Anonymous said...

'Hospital CEOs have one of the most demanding, high-pressure jobs in the nation, dealing on a daily basis with everything from ever-changing regulations to workforce shortages and lower reimbursement for services,' the hospital statement said.

With these "most demanding, high-pressure jobs" my question is this: When and how do these individuals have time for their clubs, their golf games, etc.? Do they miraculously have more than 24 hours in their days?


Anonymous said...

What I find interesting is that multi million dollar men and women do little but hire consultants and play golf with them. Then, they blindly enact policies produced by the consultants' snapshot from the golf course.

If the consultants are guiding the hospital, what exactly are the taxpayers buying for the corner suite.

I also like the recycling of the executives. Is not one of the guys listed in the report enjoying a gig at the Abington in Philly?

JPB said...

This is an outrage! It seems that there is no way of stopping the pillaging of our health care dollars. Where is the media? This subject would be perfect for an investigative journalist.

One thing is for sure, our medical costs will never go down while these "mice" continue to play!