The Rich (Hospital Managers) Get Richer - Carolinas Healthcare Raises Executive Compensation Once Again

It's that time of year again.  Carolinas Healthcare has made public its executive compensation, and once again, its CEO got a big raise, and many other executives made more than a million dollars. And once again, the CEO's raise exceeds the rate of inflation, and seems totally unrelated to how well the health system fulfilled its mission.

The History of Executive Compensation at Carolinas Healthcare

About a year ago, we noted that CEO Michael Tarwater got $5.3 million in total compensation.  In fact, we have been following his compensation since 2009 (see also posts in 2011, 2012, and 2013).  It started big, and got bigger.

- $3.4 million in 2009
- $3.7 million in 2010
- $4.2 million in 2011
- $4.76 million in 2012
- $4.9 million in 2013
- $5.3 million in 2014

The Latest Increases

Now the yearly update by Karen Garloch writing in the Charlotte Observer:

-$6.6 million in 2015

That is a 26% increase in one year, and an almost 100% increase since 2009, increases far greater than inflation.  The 2015 compensation broke down as follows:

In 2015, Tarwater received a salary of $1.28 million, two bonuses totaling $5 million, and other compensation, including retirement and health benefits of $305,318....

In contrast, the bonuses given to non-management personnel by the system were orders of magnitude smaller:

Among nonmanagement employees, more than 22,000 in Carolinas HealthCare’s Charlotte-area hospitals received 2015 incentive bonuses of $1,000 each, and 7,674 others received bonuses of $300 or $600 each, Moore said. Another “special bonus” program benefited about 24,000 employees, who received $1,000 each, and 7,568 others, who got $300 or $600 each. Total bonuses for nonmanagement employees came to $53.4 million, in addition to annual pay raises that averaged 2 percent.

Although that total sounds large in isolation, consider that one person, the CEO, got a bonus equal to one-tenth of all the bonuses given to over 24,000 other employees.

Other top executives also did very well for themselves.  

▪ Joseph Piemont, former chief operating officer: $3,200,326
▪ Greg Gombar, chief financial officer: $2, 334,150
▪ Terrence Akin, CEO of Cone Health: $1,964,482
▪ Dr. Roger Ray, chief physician executive: $1,957,065
▪ John Knox, chief administrative officer: $1,507,984
▪ Paul Franz, executive vice president: $1,500,245
▪ Dennis Phillips, executive vice president: $1,400,487
▪ Keith Smith, general counsel: $1,317,919
▪ Debra Plousha Moore, chief human resources officer: $1,306,477

CHS hospital presidents - 2015
▪ Phyllis Wingate, president, CHS NorthEast: $1,045,784
 ▪ Spencer Lilly, president, Carolinas Medical Center: $868,610
▪ Christopher Hummer, president, CHS Pineville: $711,685
▪ Michael Lutes, president, CHS Union: $690,719
▪ Brian Gwyn, president, CHS Cleveland: $664,034
▪ William Leonard, president, CHS University: $530,493
▪ Peter Acker, president, CHS Lincoln: $475,758
▪ Alfred Taylor, president, Stanly Regional Medical Center: $455,665
▪ Robert Larrison, president, Carolinas Rehabilitation: $407,503

The Usual Talking Points for Justification

Hospital management used the usual talking points to justify the pay they received,  As I wrote last year 

It seems nearly every attempt made to defend the outsize compensation given hospital and health system executives involves the same arguments, thus suggesting they are talking points, possibly crafted as a public relations ploy. We first listed the talking points here, and then provided additional examples of their use. here, here here, here, here, and here, here and here. 

They are:
- We have to pay competitive rates
- We have to pay enough to retain at least competent executives, given how hard it is to be an executive
- Our executives are not merely competitive, but brilliant (and have to be to do such a difficult job).

So, as if on cue, according to an article in the Charlotte Business Journal,

Carolinas HealthCare said in a statement that its executive compensation program is 'designed to attract, recruit and retain high-performing executives by providing market-competitive, reasonable and fair compensation.'

It notes that recruiting and retaining talent enables the health-care system to pursue 'its mission, lead in the transformation of healthcare and provide best-in-class care to our communities.'

Despite Evidence of Less than High Performance


But some recent news articles suggested that Carolinas Healthcare management is not so high-performing.  For example, we found the following articles, discussed in chronological order,

"Lawsuit: Hospitals Cheated Medicare out of Millions" (Charlotte Observer, September 2, 2015)

A newly unsealed lawsuit alleges that Carolinas Medical Center and N.C. Baptist Hospital have fraudulently obtained tens of millions of dollars from Medicare and Medicaid through an arrangement that artificially inflated their expenses.

The federal suit, filed by Forsyth County whistleblower Joe Vincoli, contends that the two hospitals overstated their costs – and thereby extracted more money from Medicare – by using a company that they own to provide health benefits to their employees.

"Employee Satisfaction at Carolinas HealthCare System Dropped in 2015" (Charlotte Observer, November 6, 2015)

The system had been rated at the 99th percentile in 2012, the 95th percentile in 2013-4, and dropped to the 76th percentile in 2015. The article stated that employees blamed staffing issues and poor leadership.

"Rehab Center Drops Program" (WSOC-TV, January 5, 2016)

The inpatient drug treatment program at First Step at Carolinas Medical Center - Union was dropped for reasons said to be "part financial- and part research-based." The overseer of the local drug treatment court decried the loss of a "very valuable" program.

"Hospitals Failed to Report Outbreaks Linked to Tainted Scopes, Senate Report Says" (Los Angeles Times, January 22, 2016)

This article lead with the failure of Carolinas Medical Center to report an infection apparently caused by the use of an endoscope that later was implicated in multiple infections at multiple hospitals.  The article noted that

Federal law requires hospitals to report deaths from a medical device to the FDA within 10 days. If the device seriously injures a patient, the hospital must notify the manufacturer within 10 days. Both notices require hospitals to fill out what the FDA calls Form 3500A.

"Notice: 360 to Lose Jobs at Health Care Facility" (WSOC-TV, January 26, 2016)

The article noted layoffs at Carolinas Medical Center- Main Rehabilitation program but noted "it's not clear why the positions are being eliminated."

So instead of high performance, the recent track-record of hospital system management included allegations of defrauding the federal government, a marked decrease in employee satisfaction, the closing of an apparently valuable rehabilitation program, the failure to report apparent adverse effects of a medical device despite requirements in federal law, and layoffs at a rehabilitation facility.  

No wonder that Karen Garloch reported in her February, 2016 article,

On hearing about the latest CHS compensation report, Mecklenburg County commissioner Pat Cotham said, 'It’s kind of depressing. … Nothing against Mr. Tarwater personally. He’s led a successful organization. … Generally I struggle with these multimillion-dollar deals. Is anybody really that valuable?'

The question becomes more acute given that it is not even clear whether Carolinas Healthcare is a private non-profit organization or a government agency.  As we noted last year, per Ms Garloch,

The system is technically a hospital authority, created by state law in 1943, and is run by a self-perpetuating board that includes top community and business leaders whose nominations get approval from the commissioners’ chairman. Over the years, chairmen have acknowledged that action is basically a rubber stamp.

A recently closed investigation by the U.S. Department of Labor focused on whether the hospital system is a governmental agency, as it claims. On Thursday, commissioner Bill James said that question remains open and might have bearing on compensation.

James said documents in the investigation included a statement by a lawyer for CHS who said hospital debts 'have been and will be backstopped by the County’s taxing power.' But James said state law has given commissioners no oversight role in connection with CHS.

'I don’t know how CHS can expect taxpayers to ‘backstop’ their billions of debt with County tax dollars without any oversight over it,' James wrote in an email.

'I do not know what is just compensation for a hospital CEO,' James wrote. But he added that most government agencies have 'typical limitations on pay.'

You would think that all those people who loudly critique spending by the "gummint" would be loudly decrying pay at Carolinas Healthcare.  However, I can find no evidence of such protests.

Summary

Whether the top managers of Carolinas Healthcare are government bureaucrats or non-profit executives, they seem to manage to pay themselves more each year, regardless of what other employees are paid, regardless of inflation, and regardless of how well the organization is upholding its health care mission.  This is another example of ho 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.

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.