Friday, September 30, 2011

More Repeats of Talking Points Supporting Making Non-Profit Hospital CEOs Into Millionaires

I have found even more cases of non-profit hospital leaders for whose generous compensation the only support was the usual talking points, without clear evidence on their behalf, and despite obvious concerns based on publicly available data.  In chronological order,


After the firing of its last CEO was later justified by contentions of misconduct and a "special relationship," but countered by accusations of insiders' financial "improprieties," (see this story in the Atlanta Journal Constitution), Wellstar, a non-profit hospital system in Georgia, hired a new CEO, Reynold C Jennings, for hefty price, per the Cherokee Tribune,
He received a five-year contract composed of an initial term of three years and two one-year renewal options.

The contract pays an annual base salary of $975,000, in addition to a bonus that could range from 35 to 65 percent of his annual salary, depending on his performance, [board of trustees chair Randall] Bentley said.

By comparison, Bentley said WellStar’s last CEO, Dr. Greg Simone, earned a base salary last year of $900,000.

Other benefits included in Jennings’ contract are:
Thirty annual paid vacation days, in addition to six holidays.
Payment for time lost from a serious health condition with proper medical certification.
Annual automobile allowance: $12,000.
Annual cell phone allowance: $2,400.
Annual physical exam allowance: $800.
Annual financial planning/tax preparation services: $3,000.
Because Jennings has existing medical and dental coverage and did not want to participate in the benefits plan offered by WellStar, WellStar will also pay him an annual $12,000 allowance for this reason.

The contract also provides for life insurance, a retirement savings plan and long-term disability benefits.

His total compensation thus would have to be more than $1 million, any additional bonus notwithstanding.

The board gave the usual justification for making Mr Jennings a million-dollar plus baby:
'We’re very excited to have someone of his talent and his capability, someone that’s within our community, someone that understands what it takes to take our system to a new level,' said Randall Bentley, chairman of WellStar’s board of trustees. 'We’re very, very excited.'

The WellStar board did not elaborate on Mr Jennings' "talent and capability," or to what "new level" he was expected to take Wellstar. The Cherokee Tribune did note he had a 10 year career in management of Tenet Healthcare, ending in 2007 as Vice Chairman.

Neither the news article nor the board noted Tenet's troubles during Jennings' tenure there, culminating with financial woes and a $395 million settlement of the Redding Medical Center unnecessary heart surgery scandal in 2004 (look here), and a $21 million settlement of US government charges of kickbacks (look here), a $7 million settlement with the government of Florida of charges of fraudulent billing (look here), and a $900 million settlement of federal over-billing complaints (look here, and see our post here), all in 2006.  At least Mr Jennings had experience dealing with allegations of financial improprieties, but if anyone raised questions about hiring someone who lead a for-profit hospital corporation at a time when it seemed steeped in a culture of dubious ethics, they were not reported.

University of California - Davis

The Sacramento Bee noted that:
Last week, UC regents approved a $259,000 raise to $960,000 a year, money paid by hospital fees, not state money or student tuition
for UC Davis Medical Center CEO Ann Madden Rice, justified because,
that another academic hospital was recruiting Rice and offering $1.5 million.

Katehi told The Bee's editorial board today that it was 'not an easy decision' to support the salary hike.

While no one is irreplaceable, she said, the cost and time of replacing Rice would be far greater than the raise.

Just hiring an executive search firm would cost $500,000, Katehi said. Then the search would take a year, and UC Davis would almost certainly end up paying more for Rice's successor. That's just the way the market is, she said.

Rice, the chancellor added, is a great leader.

One wonders whether the decision was informed by Rice's leadership earlier in this year of a lawsuit against the University of California by a group of top university executives who sought a large increase in their pensions at a time that the university was under great fiscal stress (see our post here). That lawsuit drew responses using words like "outrageous," "despicable," and "greed," (not taken out of context) from a variety of people at the university. 


This last story is regrettably local, about Lifespan, the Rhode Island based hospital system, published by the Providence Business News,
A release of Lifespan’s executives’ salary, bonuses and supplemental retirement contributions has been met with great consternation by the Rhode Island Hospital union.

The forms - the U.S. Internal Revenue Service 990 forms for non-profit organizations - show that Lifespan’s nine highest-paid executives received $9.4 million in total compensation in the last reported year, including $1.8 million in bonuses and $2.6 million in supplemental retirement contributions.

Lifespan President and CEO George A. Vecchione received a total of $2.9 million in salary and benefits – including $853,024 in base salary, $522,051 in bonuses, and $1,485,197 in retirement or deferred compensation.

Dr. Timothy J. Babineau, president and CEO of Rhode Island Hospital and The Miriam Hospital, received $1.1 million in salary and benefits – including $573,675, in base salary, $379,376 in bonuses and $92,035 in retirement or deferred compensation.

The defense of these million dollar plus compensation packages was predictable:
Alfred Verrecchia, chairman of Lifespan’s board of directors, said that because of the hospital system’s significant size and complexity, the board places a priority on recruiting and retaining a highly skilled leadership team who can manage in both good and bad times, with the goal of providing the highest quality care to patients. 'The process for setting leadership compensation is undertaken by a board committee and is informed by national surveys provide by the The Hay Group, an independent compensation consultant,' Verrecchia said.

Over the past several years, Verrecchia continued, 'base pay for executives has been relatively flat. A significant portion of the executive pay is at risk and is only paid out if quality, service and financial performance goals established by the compensation committee are achieved.'

Verrecchia praised the current leadership team at Lifespan, saying: 'Lifespan hospitals are fortunate to have a stable, sound leadership team with a proven track record of addressing significant financial challenges in order to continue to fulfill our mission of providing the best and safest care to our patients.'

The system's employees did not all agree:
'We are angry, we feel disrespected,' said Helene Macedo, president of the United Nurses & Allied Professionals which represents 2,200 employees at Rhode Island Hospital.

'It’s not justified, when we see the sacrifice that those of us who are working at the bedside are being asked to make,' she told Providence Business News.

Macedo, an operating room nurse who has been at Rhode Island Hospital for 20 years, was further irked by the fact that Lifespan had just announced a decision to cutting the matching contributions to employee’s 403(b) Fidelity plan for 2011 and eliminating the matching contribution for 2012.

'It looks like another example of corporate greed,' she said, 'when you look at their executives’ salaries, bonuses and supplemental retirement, compared to that of what employees are making – and the sacrifices we’ve been asked to make during the last several years.'

The atmosphere in the hospital, Macedo said, 'is one where we’re counting every penny and cutting every corner. But there doesn’t appear to be any corner-cutting or counting in the corner office.'


Here were three more examples of million dollar (more or less) non-profit hospital system CEOs. As we have noted frequently, even non-profit hospital systems that are supposed to put their patient care and academic missions, when applicable, first somehow seem increasingly unable to function without yearly making their leaders instant millionaires.

It was striking that the justifications, by boards of trustees or hospital spokespeople, for these indulgent pay packages followed the talking points we have identified before:
-  We pay what everyone else pays
-  CEOs work hard and are brilliant, so they deserve high pay
-  High pay is needed to attract and retain competent, if not brilliant people

Yet in these cases, as in nearly all cases we have discussed before, there were no logical, fact-based arguments why
- the particular CEOs deserved at least what supposedly comparable CEOs got, if not more, and how the comparator group were judged to be comparable;
- why the CEOs were so brilliant, (or in this case, had such "talent and capabilities," was a "great leader," or was "highly skilled," and "stable and sound") when there were at least reasonable but unanswered questions about their leadership based on publicly available information

So despite their hospitals' financial challenges, and despite questions about their previous leadership, more non-profit hospital leaders are becoming million dollar babies, encouraged by boards of trustees who seem to be basing their "stewardship" on the same talking points, rather than reasoned arguments.  One can only wish that the boards who supposedly exercise stewardship over our formerly revered health care institutions actually had to answer some tough questions about the leaders they continue to uncritically endorse.

So ad infinitum, I repeat.... health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior.

If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.


Jim Sabin said...

Hi Roy

I agree with your perspective, but I think it's important to ask WHY leaders should be compensated "reasonably, but not lavishly."

In a small organization, million dollar compensation may take too large a bite of the total budget. But in large systems like those you cite, the difference between "reasonable" and "lavish" probably doesn't have significant impact on the bottom line.

I think Helen Macedo hits the nail on the head. The "lavish" compensation can undermine solidarity among the staff and create a sense of inequity. The distrust that results can lead to cynicism about the leader's pronouncements about organizational mission. This atmosphere is bad for employees, organizational culture, and patient well-being.

Unfortunately, the "we pay what everyone else pays" talking point is likely to be true. Compensation differential in the U.S. is very high by historical standards, and by comparison to other societies. We see just how malignant this component of our national culture is in the claim that asking the wealthiest to contribute what the President correctly calls a "fair share" represents "class warfare." What it really represents is a quest for more social solidarity!



Anonymous said...

I've just run across your blog and I felt it only fair to address some points you make in your first example, CEO Reynold Jennings.

First some general comments: I understand your frustration and perhaps you have a point, but for a large system like WellStar, this is the going rate for CEO salaries. Navigating the morass of regulations from both government and insurance, guiding an organization with over 10,000 employees, etc. does take more skill than running the corner hamburger stand. I'm not sure exactly what the number should be, but to be fair, neither do you. The market determines the going rate.

Specifically with regard to Mr. Jennings and the examples you cite, Mr. Jennings was named COO in February of 2004. Your examples all reflect episodes that culminated during his tenure, but were outgrowths of transgressions that occurred BEFORE he became COO. Read your own references:
Redding Medical Center--your referenced article states in the last sentence of the fifth paragraph that these inappropriate actions occurred between 1992 and 2002.
Federal kickback settlement--the lead paragraph states that this was a "long-running" issue by the time of publication in 2006. This strongly implies that this occurred before 2004 since it takes some time for settlement terms to be negotiated.
Florida fraudulent billing--lead sentence in fourth paragraph states the investigation began in mid-2003, before Mr. Jennings became COO.
$900M settlement of fraudulent billing--about 2/3 of the way into the article, one paragraph ends with " 2003, some people thought this company may not survive." followed immediately by the next paragraph "That's when the Justice Department filed the first of three lawsuits..." therefore these lawsuits were filed (and the wrongdoing therefore preceded) Mr. Jennings appointment as COO.

So I think your examples intended to call into question Mr. Jennings integrity are highly questionable. It certainly doesn't prove that he IS an honest man, but this evidence doesn't come close to proving that he ISN'T honest either. On the contrary, it could just as easily and probably more plausibly be explained by the hypothesis that Mr. Jennings had to deal with improprieties that had been caused by others. You can't really fault him for these settlements if this is the scenario that actually took place.

So perhaps the Board or whoever vetted him actually did a little bit BETTER job than you did at assigning issues to those who were actually responsible for the wrongdoing, rather than those who had to step in to clean up the mess.

Roy M. Poses MD said...

Anonymous of Dec 16, 2011 -

Of course it is common practice nowadays to pay CEOs and other top executives much more than other employees, but that does not mean this is reasonable, good for society, or reflective of their true worth. There is plenty of discusson on this blog about how executive compensation appears inflated, and most certainly is not set by anything resembling a free market. See:

Please note that I never denigrated Mr Jennings' integrity, or stated that he was directly responsible for the ethical violations cited. I did raise a question about the corporate culture of the firm from which he came.

Trying to figure out when Mr Jennings was responsible for what, and whether he lead sub-units of Tenet at the time they were allegedly involved in ethical problems, or never had any responsibility for any such entitites is not easy. Wellstar certainly never publicly addressed Mr Jennings' past history in such detail.

Mr Jennings' work history is complex, and not easy to fully understand just from perusing the internet. A Facebook page authored by Wellstar ( ) suggested that before he was Tenet COO he had been in charge of Tenet's Eastern Division, which included 11 states, and prior to that, its Southeast Division, which included Florida. Note that the Florida settlement of 2006 apparently was based on an investigation finished in 2003 (see: ). Presumably the relevant events occurred before 2003. I cannot tell whether Mr Jennings was in charge of Flordia hospitals during that time.

If "Anonymous" wants to enlighten us about the precise timing of the events related to all the settlements listed, and relate them to the timing of Mr Jennings various leadership position and the areas for which he took responsibility, he or she could feel free to go ahead.

By the way, I apologize for getting Mr Jennings middle initial wrong. He is Raymond J Jennings.

Also by the way, I cannot tell who "Anonymous" is, but his or her writings suggest the possibility that he or she has a financial relationship with Wellstar, Tenet, Mr Jennings, or some other related entity that might influence him or her to defend Mr Jennings. If so, knowing about that relationship would at least make for a more transparent discussion. Would "Anonymous" care to reveal his or her identity and disclose any such potential conflicts of interest?