Talking Points, Sans Original Thought, to Justify Million Dollar Hospital CEO Compensation

Generous pay given to health care leaders has become an area of interest in the media.  Some recent regional stories had a certain dreary sameness, however.  It seems that nearly everywhere in the US, million dollar CEOs have become commonplace at non-profit hospitals and health care systems. 

Atlanta, Georgia Region

In July, the Atlanta Journal Constitution reported on the compensation given to some regional hospital leaders.  It included the usual gaggle of million dollar CEOs:

Edward Bonn of Southern Regional Health System, which operates Southern Regional Medical Center and two affiliated facilities, made $2,610,175 in fiscal 2009. Bonn left the system that year and received his pay of $421,822 plus $2.2 million from a retirement plan. Hospital CEOs commonly receive extra pay from retirement plans when they leave.

and

In fiscal 2009, John Fox of Emory Healthcare made $1,671,999 to manage Emory University Hospital and five associated institutions.

Tim Stack of Piedmont Healthcare, who manages Piedmont Hospital and three others, made $1,340,974 the same year

There were two other million dollar CEOs that the article did not name.

The State of Georgia

Last month, Georgia Health News published a story on other highly paid hospital leaders. In general,

Georgia Health News has found that executives at nine other Georgia nonprofit hospitals or health systems outside metro Atlanta received at least $1 million in total compensation during their organizations’ most recent fiscal year

Some specifics:

Ken Beverly, former CEO and president of Archbold Medical Center, a four-hospital system based in Thomasville, who received $6.2 million in fiscal 2009. The health system told Atlanta Unfiltered that most of that compensation related to Beverly’s retirement benefits, accumulated over many years of service.

Also,

The Gainesville [Northeast Georgia Health] system, which has 5,000 employees, paid CEO James Gardner $1.4 million in total compensation in fiscal 2009.

Furthermore,

** The Medical Center of Central Georgia paid Donald Faulk, its CEO, $1,003,412 in fiscal 2009. Faulk has been CEO of the Macon hospital since 1995, and has been employed there for 37 years.

** Larry Sanders, CEO of Columbus Regional Healthcare System, received compensation of $2.2 million in fiscal 2010, with $1 million of it a payout of a supplemental retirement benefit called a split-dollar life insurance policy. Sanders has worked in that system, which includes the Medical Center in Columbus, for 30 years.
** Jack Drew, with 29 years of service at Athens Regional Medical Center, received $1,185,902 in fiscal 2009.

** University Health in Augusta paid CEO Larry Read $3.5 million in fiscal 2009, with the majority coming as payment of his retirement benefit. Read retired last year.
** Joel Wernick, longtime CEO at Phoebe Putney in Albany, received $1.3 million, with part of it a one-time deferred compensation payment, in fiscal 2010.
** Kurt Stuenkel, CEO of Floyd Medical Center in Rome, received $1.35 million in compensation in fiscal 2010.
** At St. Joseph’s/Candler in Savannah, Paul Hinchey received $1,053,390 in total compensation in fiscal 2010.

Madison, Wisconsin Region

Madison.com discussed the area's highest paid hospital CEOs. They included:

Javon Bea, CEO of Janesville-based Mercy Health System, made $3.6 million in total compensation in 2009 and $4.5 million the year before. The system has hospitals in Janesville, Lake Geneva and Harvard, Ill.

Columbus, Ohio Region

Columbus Business First noted compensation of regional hospital systems, including:

By far the highest paid was Dave Blom, CEO of Columbus-based OhioHealth Corp ., at $1.8 million. About $675,000 of that total is deferred compensation. Among chiefs, he’s followed by Dr. Steve Allen of Nationwide Children’s Hospital at $1.2 million,...

Furthermore, the justifications for these pay packages uncovered by reporters in different parts of the country also had a certain sameness.  They were actually so similar as to suggest they came from a common set of talking points generated by a common public relations effort. 

We Pay What Everyone Else Pays

In Atlanta, in general:

Atlanta hospital boards have compensation committees of community leaders to ensure executive salaries meet Internal Revenue Service guidelines and are competitive with salaries offered by other medical facilities.

Also,

All of the tax exempt hospitals in the area issued statements asserting their CEO’s compensation is vetted by their boards and in line with industry standards....

In Georgia

Hospital boards 'have to pay market rates in order to attract talent,' said Glenn Pearson, Georgia Hospital Association executive vice president. CEO salaries in Georgia 'appear to be very much in line with national trends,' he said.

In Columbus, Ohio

Hospital trustees set compensation after studying comparable positions in both the nonprofit and for-profit sectors.

CEOs Work Hard and are Brilliant, so They Deserve High Pay

In Atlanta, in general:

Industry representatives say these pay packages ensure communities get the best possible care by attracting the few people capable of administering these complex organizations.

Also,

Pay in excess of $1 million a year may seem high for an organization subsidized by taxpayers, but hospital executives and industry representatives said the public should think of these hospitals not as charities, but as complex, billion-dollar organizations.

Georgia hospitals report to 27 state and federal agencies and engage in multimillion-dollar building projects. The larger hospital systems have billions in revenue and are among the largest employers in their communities. Many also operate for-profit subsidiaries.

'You can’t lose sight of the fact that it’s not an ice cream shop on the side of the street,' said Joseph Parker, president of the Georgia Hospital Association.

In Georgia as a whole,

GHA added that hospitals are accountable to 27 state and federal agencies, while dealing with tight Medicaid reimbursement and an increasing number of uninsured people.

In Madison, Wisconsin,

health care has become much more complicated than when Catholic nuns ran many nonprofit hospitals while taking vows of poverty, said [Integrated Healthcare Strategies vice president David] Bjork, the health care consultant.

He said today's hospital executives struggle to keep their complex enterprises afloat, dealing with independent doctors who make many of the key financial decisions while being largely unable to predict when patients need services.

High Pay is Needed to Attract and Retain Competent, If Not Brilliant People

In Atlanta,

The number of people who can manage these facilities is limited and recruitment is competitive, Parker said.

Qualified leaders will gravitate to other fields over time if compensation for nonprofit CEOs is decreased, [Mercer Inc pay consultant Jose] Pagoaga said. The 'substandard leadership' that replaces them will degrade the quality of medical care for the community.

In Georgia,

The pay decision is made by community leaders who serve on hospital boards, Pearson said. Those board leaders want to make sure they 'have the person of the highest quality,' given the challenging financial times that hospitals face, he said.

Furthermore,

It’s a competitive market nationally for the top people, said Kevin Talbot, a vice president of the [Integrated Healthcare Strategies consulting] firm.

Also,

Boards of Georgia nonprofit health systems responded to GHN that the compensation is needed to attract and retain talented executives.

In particular,

'Establishing and maintaining competitive executive compensation is critical to our ability to ensure that we have a highly competent and effective leader at the helm, and it is a responsibility that our board does not take lightly,' said Mary Lynn Coyle, chairman of the board of Northeast Georgia Health System.

Finally,

'This is a field where there's a great demand for talent,' said Nancy Anderson, chairman of the board of the Medical Center of Central Georgia.

In Madison, Wisconsin,

But large hospitals such as those in Madison have to pay top dollar to attract people with the skills to manage them, said David Bjork, senior vice president of the Minneapolis-based consulting firm Integrated Healthcare Strategies. 'Running a hospital is probably the toughest management job that exists,' Bjork said.

In Columbus, Ohio,

'People who are running hospitals and hospital systems are running businesses that are literally saving people’s lives, so it’s really important to have a quality leader,' said Tiffany Himmelreich, spokeswoman for the Ohio Hospital Association

And,

'People with these types of leadership abilities could easily be snatched up by for-profit businesses,' she said.

There was also a certain sameness in what the the reports did not say.

Things Unsaid, and Questions Begged

None of the news reports contained a response from a million dollar CEO.  Justifications of CEO pay came from hospital trustees, hospital spokespeople, or compensation consultants.

None of the news reports explained why a particular CEO should be considered above average, much less brilliant.  None explained why a particular group of comparator hospitals were appropriate for a particular hospital and its CEO.  As we have discussed before, all CEOs cannot be above average, some CEOs must be below average.  Yet while the reports mentioned CEOs who made less than $1 million, none would dare characterize them as below average. 

Some news reports noted reasons that particular hospitals or CEOs or CEOs ought not to be compared so favorably to their peers.  For example, Edward Bonn's Southern Regional Health System in the Atlanta area lost $12 million in 2009, Tim Stack's Piedmont Health "will cut 464 jobs," and Ken Beverly, of Archbold Medical Center, "was found guilty on six counts in a health care fraud case." (See this post on the latter.)However, nobody in the news reports dared to suggest that these CEOs might be below average in some sense, and hence might not be entitled to such high pay.   

The report from Atlanta noted, "hospital executives and industry experts consider the examination of salaries a titillating issue for the public, but a subject lacking in substance."   However, they failed to explain why the incentives created by large salaries may not generate concerns of substance, or address the concern that "the 'rarified existence' of some nonprofit hospital CEOs may warp their financial decisions and blunt the charitable mission."

Finally, if CEOs, most of whom are not health care professionals, are credited with "literally saving people's lives," why are the health care professionals who actually do save people's live not credited even more?

Summary

The extreme consistency of justifications for generous compensation given to hospital and health system CEOs, (and as we have seen, for such compensation given to other health care leaders) suggests that these justifications are talking points being generated by the leaders public relations flacks.  They may be using talking points because they know the real reason for the high pay is that the CEOs have become unaccountable, and able to set their own pay.  If the CEOs and their friendly boards cannot refute this contention, the latter do not deserve their pay, and the former do not deserve their positions of stewardship.

Over and over, I say... 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.