No Blues, but Lots of Green for St Louis Hospital System CEOs

A recent article in the St Louis Post Dispatch provided the latest examples of how hospital executive compensation continues to defy gravity.  In summary,

In recent years, executives at St. Louis-area nonprofit health organizations have seen annual double-digit increases of as much as 40 percent in their total compensation packages, which typically include salaries, bonuses, pensions and health benefits.

Such pay hikes occurred as these nonprofit organizations enjoyed their largest operating margins in years,...

The examples include...

BJC Healthcare

Steven Lipstein, president and chief executive of St. Louis-based BJC Healthcare, received a total compensation package of about $3.3 million in 2011, the latest year currently available per BJC’s tax filings. That’s a 40 percent hike over his compensation of $2.3 million in 2010. A year earlier, he received a 4 percent increase.

In particular,

 According to BJC’s 990 tax filing, Lipstein’s 2011 compensation of $3,279,956 included a base salary of $920,576; bonuses and incentive pay of $2,213,555; other compensation of $15,733; deferred compensation of $99,651; and $30,441 in 'nontaxable benefits.'

Also,

Five BJC executives received total compensation packages in 2011 exceeding $1 million.

For comparison, note that

The health system paid about $1.7 billion in salaries and benefits in 2011 to its 28,559 employees — an overall increase of nearly 5 percent over its labor costs in 2010, when it had about 250 fewer employees.

So Mr Lipstein's compensation rose much faster than the system's total labor costs.  Also,

 BJC employees — which include a spectrum of jobs from administrators, physicians and nurses to medical technicians, office workers and supply clerks — earn annual salaries and benefits on average totaling about $58,343. Lipstein’s pay package of $3.3 million for 2011 was 56 times greater than the average BJC employee’s compensation.

So the CEOs compensation was much larger than that of the average employee, and seems to have risen much faster.

SSM Health Care

William Thompson... [is] chief executive of Creve Coeur-based SSM Health Care, which operates 18 hospitals in four states. He received total compensation of $2.3 million in 2011 — a 26 percent increase over 2010.

Some of that pay hike was attributable to a change in jobs. Thompson, SSM’s former chief operating officer, assumed the role of chief executive in August 2011. In 2010, his pay increased 95 percent from $918,229 to $1.8 million.

Ascension Health Alliance

 Anthony Tersigni, chief executive of Ascension Health Alliance, received total compensation in fiscal year 2012 of $4 million — a 12 percent increase over the previous year. A year earlier, he received a 6.5 percent increase over the previous year in his former role as chief executive of Ascension Health. 

In addition,

 Nine executives at Ascension’s headquarters received total compensation in fiscal year 2012 exceeding $1 million.

Mercy Health

Lynn Britton, chief executive of Mercy, received $2.2 million in total compensation in fiscal year 2012 — a 15 percent increase over 2011. A year earlier, he received an 18 percent increase.  

And,

Five current and former Mercy executives received total compensation in fiscal year 2012 exceeding $1 million.

Myra Aubuchon, a former Mercy senior vice president who left the health system in 2010, received a payout in fiscal year 2011 of $3.4 million for retirement benefits, severance and other compensation. In fiscal year 2012, she received an additional $405,339 in compensation.

Mercy executives are provided additional perquisites, including first class and charter travel on Mercy’s aircraft and the opportunity at times for their spouses to accompany them to business and other events. Executives and staff fly to and from some business meetings in Mercy’s midsize corporate jet, a Rockwell Sabreliner. 

The Usual Talking Points

So all CEOs of the St Louis area's bigger non-profit health care systems made more than $1 million, often several  times that.  Most of the systems had multiple other hired executives who made at least $1 million.  Often executives received other perks far beyond anything received by other employees, such as travel on corporate jet aircraft.  

We have noted that nearly every attempt made to defend the outsize compensation given hospital and health system executives involves the same talking points.   We first listed the talking points here, and then provided additional examples of their use here, 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.

The Post-Dispatch article provided more examples of these stereotypical justifications.

Competitive Rates

 The SSM CEO actually seemed to make such an argument to justify his own pay,

'I’ve been (at SSM) for 33 years, and for a lot of those years I wasn’t paid nearly the salary I’m paid now,' Thompson said. 'If you look at the revenue, I don’t think I’m over- or underpaid.'

He provided no data to support is argument.

And again,

Salaries and benefits for nonprofit health executives 'need to be competitive if we are going to be able to attract the talent needed to run these very complex organizations,' he said.

How that talent was defined was not apparent.

The chief of  public relations of Ascension Health Alliance added,

 [Chief advocacy and communications officer Jon] Glaudemans said that Ascension is seeking “to remain competitive in a market that is increasingly complex and characterized by challenging regulatory circumstances, including implementation of the Affordable Care Act.”

From the senior vice president for human resources for Mercy Health, Cynthia Mercer, we had this contribution,

'We’re competing for the same pool for talent,' Mercer said. 'It’s difficult to secure talent. ...'

She did not provide a definition of talent either.  Note that she also said,

We feel that it’s very important as a ministry to be just in our approach, respecting the dignity of each of our co-workers regardless of their position.  

She did not explain the justice provided by the top executives' use of private corporate aircraft and the free travel provided to their spouses.

Retention

An example came from the chief PR flack from Ascension,

'We are required to be competitive, but we also have a mission to care for those who are poor and vulnerable. Candidly, many of our executives could do better for themselves working in other environments.'

He did not give evidence that his or any other local executives were in great demand in such other environments.  He certainly did not try to reconcile how an organization with a mission to care for "the poor and vulnerable" was making a multimillionaire out of its CEO.

Brilliance

The chief public relations flack at Ascension Health Alliance provided this example,

'When we look for leadership of our ministry, we need to draw from the best and brightest to serve those who are poor and vulnerable,' said Jon Glaudemans,...

Whether his use of the term "best and brightest" was meant to be an ironic allusion to the leaders who lead the US into the controversial and bloody Viet-Nam War was not clear.

In response to the first Post Dispatch article, a physician, self-described as " a 40-year veteran of Washington University Medical School and BJC hospitals," wrote a letter in Mr Lipstein's defense.  To prove the CEO's brilliance, Dr Robert G Levitt gave him personal credit for a number of accomplishments, such as addressing readmissions for congestive heart failure patients, and avoiding outbreaks of multidrug resistant bacteria in intensive care units, that seem to be more likely to have resulted from diligent work by health professionals.  He praised Lipstein for actually "respond[ing] to emails from physicians and staff," which hardly seems brilliant.  Finally, he noted "BJC has not laid off workers as other St. Louis hospital systems have done to save costs."

It only took three days for that point to be proven wrong, as the St Louis Post-Dispatch then reported, "BJC Healthcare began on Wednesday laying off 160 employees, the first layoffs in the company’s 20-year history."  Per the St Louis Business Journal, these layoffs may include at least some "direct patient care staff," that is, e.g., nurses, and were due to declining revenue. 

Summary

The St Louis Post Dispatch main article on CEO pay opened thus,

Trimming medical costs is the latest mantra among hospital executives, government bureaucrats, insurers and benefit managers as they grapple for ways to contain U.S. health care spending.But executive compensation in the health care industry shows few signs of hitting a ceiling. 

It included comments by Professor Harold Miller of the Center for Healthcare Quality Payment and Reform and Carnegie-Mellon University,

'But if a health care executive’s pay is based on the amount of revenue they generate, the problem is in the incentive,” he said. “Basically, hospitals get rewarded by putting more heads in beds. It works against the goal of affordable health care. We need to start paying these executives to keep people healthy.'

And he noted the danger is,

when executives start chasing their own compensation rather than the good of the company. We’ve seen that in banking, and that can happen in health care

I would argue that this is already what is going on. Non-profit organizations whose missions include taking care of poor people pay their top executives millions of dollars. We have yet to see any logical, evidence-based justifications for such generous and ever rising compensation.  This compensation is increasingly out of proportion to what other employees are paid   Their compensation may rise even when their organizations' finances are challenged (see the example of the BJC layoffs above).  Nearly all rationalizations of their compensation are made by people whose jobs depend on the executives they are defending (as above), or by other hired executives who may be eager to defend their brethren. 

As long as hired executives chase compensation rather than uphold the health care mission, expect their personal fortunes to increase, and the mission to wither.

We await  true health care reform which would ensure health care organizational leadership that puts upholding the health care mission ahead of lining their pockets.  . 

Guest Post: the Slow Grind of Justice

 Health Care Renewal presents a guest blog by Steve Lucas, a retired businessman who formerly worked in real estate and construction who has a long standing interest in business ethics, and has long observed the health care scene.

The March 14, 2013 Akron Beacon Journal print edition highlights what I am sure Mercy Medical Center hopes is the end of a long legal battle with Aultman Health Foundation. 

Cheryl Powell writes in "High court throws out appeal by Aultman" highlights the Ohio Supreme Courts dismissal of Aultman’s suit brought in regards to a 2010 court ruling that Aultman pay Mercy $6.1 million for unfair business practices. 

A review of that legal action can be found on this Health Care Renewal post.

The legal battle centers on 'secret ´bonuses paid to select brokers for switching employers from other insurance plans to Aultman’s insurance company, AultCare.

Aultman Hospital is AultCare’s only in-network hospital in Canton.'

It is important to remember that AultCare is an aggressive for-profit insurance company.

At the end of the two-month trial in Stark County Common Please Court, jurors decided Aultman should pay Mercy more than $6.1 million in damages for engaging n a pattern of corrupt activity by influencing brokers with money.

'Evidence during the trial showed that for a period of time, brokers weren’t allowed to disclose the payments to anyone, even the clients they represented.

Aultman officials have said the confidentiality requirement was dropped in 2004, well before Mercy filed its lawsuit.

We see an all too familiar behavior pattern: someone sensing that he or she is about to be caught drops an activity and then feigns innocence for our past transgressions. How often have we seen a drug company sign a consent agreement only then to return to court to sigh another consent agreement? How often are we told that an activity was committed by a low level sales person and that person is no longer with the company?

Aultman has continued to criticize the case Mercy filed, calling it a waste of resource for the non-profit health-care organizations.

'We have always felt that this case was not positive for our community, that resources were shifted in a way that was not beneficial to the community' [the attorney representing Aultman, Allen] Schulman said. 'I don’t think that it serves the community well.'

[ Mercy President and Chief Executive Thomas] Cecconi said Mercy felt an obligation to fight Aultman’s business practices for the community’s sake.

Conclusion

Once again we find the use of the legal system perverted by one party in an effort to gain a business advantage over another entity.

Aultman has used its non-profit status to shield the activities of a for-profit insurance subsidiary.  Perhaps someone thought that no one would sue a large non-profit hospital for the actions of the subsidiary.

Aultman used the tired old refrain that “we don’t do that anymore” as a defense for past business practices that garnered questionable profits. This after the fact admission does not absolve them of responsibility for those actions.

When all else fails Aultman uses the appeal that it reflects badly on the community. It really does not matter that they were the ones who engaged in this activity. Additionally they make the claim this will result in a decline in resources available when they profited from the original activity.

These are old concepts to HCR readers. The use of the legal system, from law suits being filed against those who would blow the whistle, to grinding out appeals to bleed a person or organization dry, all in an effort to protect a questionable or even illegal activity. In this case there is still the issue of Mercy’s legal fees involved in Aultman’s appeal.

Smaller markets are seeing a consolidation of hospitals and medical practices. The opportunity for one party to take advantage of this is growing as patients and doctors are presented with limited opportunities to seek appropriate medical care. When the hospital owns the insurance company, and your care will be dictated by the policy available through only one company, the opportunity for abuse has to be acknowledged.

Mercy has begun to grow again by offering the community a less corporate medical experience. Interestingly, Mercy and Aultman have collaborated on securing scarce oncology drugs. It appears some doctors still feel it is about caring for the patient, and less about loyalty to a corporate logo.

Steve Lucas

What Mercy Will the Uninsured Patients of Mercy Health Systems Get?

A story from Arkansas about hospitals billing uninsured patients at higher "rack rates" than they bill insured patients contains some important insights about this increasingly recognized problem.
Lawyers for St. Mary's Hospital, one of the hospitals under fire for its billing practices, defended its actions thusly, "Just as a company that buys 100 widgets from a seller will get a better price than a company that buys just one widget from the seller, a managed care plan that 'buys' St. Mary's services for hundreds of patients can legitmately expect to pay less for St. Mary's services than patients such as plaintiffs who buy St. Mary's services only for themselves."
The analogy is not a good one because one can produce a lot of widgets at a cheaper unit cost than one can produce one widget. But health care must be customized for each patient, so how would knowing that a group of patients are insured by a particular company lower the costs of caring for them enough to justify a volume discount?
Furthermore, the communications director for Mercy Health System, of which St. Mary's is a part, said the system agrees with "the American Hospital Association's stance on the issue of uninsured billing." That stance is apparently that the federal government should keep its hands off the issue. On the other hand, former Secretary of Health and Human Services Tommy Thompson wrote to the AHA that "hospitals charging the uninsured the highest rates is a serious issue that demands all of our attention." He called the AHA's position "not correct and [it] certainly does not reflect [Health and Human Services] policy.... I strongly encourage you to work with the AHA member hospitals to take action to [end the situation] where ... uninsured Americans and others of limited means are often billed and required to pay higher charges."
But the real issue here is not the pricing of widgets, or even whether the federal government or the states should have roles regulating the prices hospitals charge uninsured patients.
Mercy Health System's mission statement says that it "is committed to the ministry of health and healing for all God's people, with particular concern for the economically poor." By charging the uninsured the full rack rate, and then vigorously defending this pricing scheme as documented above, the hospital and system leadership appears to be in fundamental conflict with their own stated worthy mission.
This is another striking example of a fundamental problem in the US health care system (and perhaps in other countries as well.) Health care organizations' actions are more and more in conflict with their stated values.
So what mercy will the uninsured patients of Mercy Health Systems get?
(Thanks to the Health Business Blog for the reference to this article.)