Concerns over hospital executive pay arose again recently when WellStar Health System’s new CEO received a contract including a base salary of $975,000. Reynold J. Jennings will also have the opportunity for a bonus that could pay thousands more.
The pay report on the Marietta-based health system followed a July AJC article by M.E. Pell that five metro Atlanta nonprofit hospital leaders were being compensated at the seven-figure level, according to the latest financial records available.
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, according to data available on GuideStar.org, a website that posts nonprofits’ tax records online.
Information about high executive compensation comes at an awkward time for hospitals. The hospital industry has not been immune to the effects of the economic downturn, with several facilities eliminating jobs. The AJC recently reported that hospitals in the state cut 3,000 jobs over the past 12 months, countering the decade-long trend of the health care industry being a job-generating machine.
Meanwhile, there is increased scrutiny nationally on the “community benefit” spending that nonprofit hospitals give in return for their tax-exempt status — such as financial assistance to low-income, uninsured patients.
“The public’s perception is that CEOs are more focused on compensation packages than delivering services to the most in need,’’ said Russ Toal, former commissioner of the Georgia Department of Community Health, and now a health policy and management professor at Georgia Southern University.
“The irony is that many of these [local] communities have a disproportionate share of low-income folks,’’ Toal said. “These guys do a good job — they are competent people. But do you have to pay that much?”
Several of the nine Georgia CEOs have recently retired, plan to retire, or have departed from those positions.
They include 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.
In December, Beverly was found guilty on six counts in a health care fraud case involving Medicaid payments.
Paying ‘market rates’
High salaries are not just a Georgia phenomenon. Media reports in New York City, Washington state, the Tampa area, Baltimore and North Carolina all found $1 million-plus compensation for hospital chief executives.
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.
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.
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.
The average salary and bonus for a hospital chief executive amounted to $517,000 in 2010, and for a health system CEO the figure was $909,000, according to a survey by Integrated Healthcare Strategies, a consulting firm based in Minneapolis. The survey’s sample was skewed toward larger hospitals.
It’s a competitive market nationally for the top people, said Kevin Talbot, a vice president of the firm.
A recent survey by Modern Healthcare magazine found that CEOs of hospital systems with more than $1 billion in revenue took home median total compensation of $1.2 million in 2011. For freestanding hospitals, the median total compensation for CEOs was $571,000 in 2011. Chicago-based Sullivan, Cotter and Associates, a consulting firm, provided the annual survey data to the magazine.
None of the nine hospital systems in Georgia outside metro Atlanta had annual revenues approaching $1 billion.
Boards of Georgia nonprofit health systems responded to GHN that the compensation is needed to attract and retain talented executives. The CEO pay is generally divided into salary and incentives that are based on quality of care and financial performance.
Hospital boards said they use consulting firms to help formulate and review the compensation.
“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. The Gainesville system, which has 5,000 employees, paid CEO James Gardner $1.4 million in total compensation in fiscal 2009.
Gardner left the position last November.
Many of the highest-paid executives have been with their respective organizations for decades.
** 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.
“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.
** 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. “We are confident that is compensation was competitive with the market,’’ said Marilyn Farmer, chair of Athens Regional Health Services’ board.
Drew recently retired, while Sanders has announced retirement plans.
** 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.
For-profit hospital corporations Tenet Healthcare and HCA said they do not disclose CEO salaries, and as for-profit companies, their tax records are not available on Guidestar. Each has several hospitals in Georgia.
Talbot of Integrated Healthcare Strategies said CEOs of a for-profit hospital can often make higher compensation than their nonprofit counterparts because of stock options and restricted shares made available to them.
An issue that won’t fade away
Meanwhile, the AJC’s Pell, in a second article, raised questions about community benefits that not-for-profit hospitals give in return for the millions of dollars a year in federal, state and local tax breaks they receive. Georgia, like 35 other states, has no specific requirements that hospitals must meet to justify these tax breaks, the article noted.
An AJC analysis of hospital data revealed that some nonprofit hospitals provide less in community benefits — i.e., charity health care for the poor — than do the taxpaying, for-profit hospitals in Georgia.
The community benefit issue has drawn increasing attention nationally, said Jessica Curtis of Community Catalyst, a Boston-based consumer advocacy organization.
Curtis noted that the 2010 health reform law requires nonprofit hospitals to develop written financial assistance polices, limit what they charge for services, and observe fair billing and debt collection practices.
High executive compensation at nonprofit hospitals “should raise questions, especially now with the economic downturn and people losing jobs,’’ Curtis said. “At the community level, there should be conversations on this issue.’’
Talbot said questions about executive compensation are not going away. Both local communities and hospital boards are more engaged on the issue, he said. “That sort of tension I expect to continue,’’ he said.
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