Monday, January 31, 2011

More on Hospital Executives' Disproportionate Pay

Local US news media brought some more striking examples of disproportionate pay given to health care organizational leaders. 

Carolinas HealthCare System: Corporate-Style Compensation for a Public Hospital CEO

Carolinas HealthCare System declares it is "the largest health care system in the Carolinas and the third largest public system in the nation" in its membership blurb for the National Association of Public Hospitals and Health Systems.  That association describes its members thus,
Since the establishment of the first public hospital in the United States in the early 1700s, safety net hospitals and health systems have been an essential part of our nation’s health care delivery system.

In the 21st century, safety net hospitals continue their long tradition of quality and service to the community. By delivering care to America’s growing number of working uninsured families, providing world-class trauma and emergency care, preparing for and responding to the threat of terrorism, epidemics, and natural disasters, and training the next generation of doctors, nurses, and dentists—safety net health systems ensure our nation’s communities are health and strong.
The Charlotte Observer just noted how much this "safety net hospital," which declared solidarity with "working uninsured families," pays its CEO:
Carolinas HealthCare System paid its CEO $3.7 million in 2010, $287,000 more than the year before as the system lifted a pay freeze and paid bonuses for reaching annual and long-term goals.

Chief Executive Officer Michael Tarwater, 57, who has led the $6.3 billion public hospital system for nine years, received a base salary of $986,172, two bonuses totaling $2 million, and other compensation, including retirement and health benefits, of $630,346.

In 2009 his compensation package totaled $3.4 million.

So the leader of an organization that serves the poor and uninsured gets enough compensation to make him  quite rich.    

Mary Washington Healthcare: Net Income Increases, but 20% Goes to Bonuses of Top 20 Executives

According to the Fredricksburg (Virginia) Free Lance-Star, from 2008 to 2009, Mary Washington Healthcare saw its total revenues increase, but its net surplus decrease,
The company's net income was $25 million in 2008, up from $20 million in 2007.
The company opened its second hospital that year [2009] and recorded revenues of more than $666 million, up from $551 million in 2008. However, net income dropped to $8 million, in part because of the opening of Stafford Hospital.

So what happened to its executive compensation?
The top employees at Mary Washington Healthcare earned more than $1.1 million in bonuses in 2009, their reward for a successful 2008.

More than two dozen key executives and employee physicians earned annual bonuses ranging from $2,000 to $246,278. The median bonus for the company was more than $28,000.

Fred Rankin, president and chief executive officer, received the largest bonus among managers: $151,430. Rankin continues to be the firm's highest-paid employee, with a 2009 salary package of $955,282.

The hospital's net income increased $5 million (25%) from 2007 to 2008.  It then dropped $17 million (66%) from 2008 to 2009.  Reflecting 2008 results, its top 20 executives received 2009 bonuses of over $1 million, an amount that exceeded 20% of the hospital's 2008 net revenue increase on which the bonuses were based.  The total compensation of these 20 people in 2009 was approximately $6.5 million (see here), which exceeded the hospital's entire increase in net revenue from 2007 to 2008.  The hospital CEO's compensation in 2009 would have consumed one-eighth of the net revenue that year.  This all suggests that the top executives of this hospital consume an inordinate part of the organization's total revenue stream.    

Hutcheson Medical Center: CEO Compensation and Deficits Rise

Here is how the Rome News-Tribune described the financial status of Hutcheson Medical Center, located in Fort Oglethorpe, Georgia:
HMC reported a profit of $766,766 in 2007 and a $7.3 million loss in 2009.

In addition,
In 2008 more than 80 Hutcheson employees lost their jobs when the hospital eliminated its emergency medical services.

And after the profitable year of 2007, the Hutcheson administration approved major renovations for the hospital’s front lobby and entered into a $35.5 million dollar bond issue to fund further renovations and pay off debt.

That bond issue is currently in default, which prohibits the next $10 million payment from being released to HMC.

Things look worse in the future:
At a meeting Thursday, Jan. 28, of the Hospital Authority Board, HMC chief financial officer Gerald Faircloth revealed that the hospital had losses of $3.3 million in the first quarter of budget year 2011 and projected total 2011 losses at around $9 million.

Faircloth, whose compensation went down by $15,000 from 2008 to 2009, also reported that HMC has an estimated 15 days of operating cash on hand.

'So the wolf is at the door,' said Bill Cohen, a trustee who represents Catoosa County on the Hospital Authority Board.

Faircloth agreed.

Wolves notwithstanding, however, the Hutcheson CEO has done very well:
In the face of Hutcheson Medical Center’s financial losses over the past several years, financial documents reveal that president and CEO Charles Stewart’s compensation package has increased more than 26 percent from 2007 to 2009.

According to Internal Revenue Service documents for the 2007 and 2009 budget years, Stewart received $337,081 and $425,745, respectively, in total compensation. The Fort Oglethorpe hospital’s budget year runs from October through September.

Stewart’s 2009 income includes a “bonus and incentive compensation” of $69,750.
So despite a major financial loss, lay-offs and service discontinuations, and a bond default, the CEO got "bonus and incentive compensation" in 2009.   At least that drew some attention:
'I’m really surprised that the board (Stewart) works for would give him such an increase,' said Walker County commissioner Bebe Heiskell, referring to the HMC board of directors that oversees the day-to-day operations of the hospital. 'For a failing hospital that’s exorbitant.'

So while the hospital's financial performance continued to decline, the total compensation provided its CEO continued to increase.


Here were three instances in which the compensation of top non-profit hospital leaders seemed out of all proportion to the hospitals' financial results, let alone their accomplishment of their missions. In the first case, the CEO of a public hospital system meant to serve poor and uninsured patients was paid enough in one year to make him an instant multi-millionaire. In the second, the bonuses alone handed out to a handful of top executives ostensibly based on a net revenue increase would have consumed one-fifth of that increase, and when net revenue declined the next year, those executives' compensation would have almost consumed that entire year's net revenue. In the third, a CEO got increasing compensation while his hospital suffered increasing losses.

As we have said before, far too often the leaders of not-for-profit health care institutions seem more interested in padding their own bottom lines than upholding the institutions' missions. They often seem entirely unaware of their duty to put those missions ahead of their own self-interest. Like the financial services sector in the era of "greed is good," health care too often seems run by "insiders hijacking established institutions for their personal benefit." 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.


Afraid said...

A previous comment questioned the effectiveness on change of HCRenewal focus on this topic.

I agree and ask to be directed to any group or conversation on how to leverage the information presented here to spur positive changes.

Roy M. Poses MD said...


I wish I knew about a group that was truly effective on these issues. A while back I put out a call to the members of our email lists to see if they knew of a local, national or global group like this. None did.

We do have an email list to which I send updates about the blog, and which occasionally breaks out in conversation. I would be happy to sign you, or other interested people up. Anyone interested should communicate with me: rposes at firmfound dot org.