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Nonprofit hospital chiefs’ salaries: Fair or out of line? (DS)

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By David Pevear,
Updated: 03/09/2009 09:58:15 AM EDT

LOWELL — Are the salaries of presidents of nonprofit hospitals, nearly $500,000 a year on average, too healthy for an ailing health-care system headed for a major overhaul?

Congress and the Internal Revenue Service seem interested in finding out.
Sen. Charles Grassley, the top Republican on the Senate Finance Committee, is reportedly preparing to introduce legislation that would pressure hospital boards of directors to keep executive salaries in check.

Lynn Nicholas, CEO of the Massachusetts Hospital Association, said it is only natural these days for "John Q. Citizen" to question six- and seven-figure salaries paid to executives.

"What is not appreciated is the enormous complexity and responsibility of running a hospital in today’s environment," Nicholas said. "The talent pool for such individuals is small, and (the hiring process is) very competitive, (and) we in Massachusetts do need to compete for the best and the brightest."

Locally, David Barrett, CEO at Lahey Clinic in Burlington, had a salary and compensation package totaling more than $1.1 million the year ending Sept. 30, 2007. (That figure does not include a $1.5 million lump-sum cashout of a supplemental retirement benefit.)

Lahey spokesman Scott Hartman said Barrett’s pay is in line with executive pay at Boston’s leading clinical research hospitals, to which Lahey compares itself.
Massachusetts General President Peter Slavin received $1.2 million in salary and benefits during the fiscal year ending Sept. 30, 200

Over that same period, Normand Deschene, president and CEO of Lowell General Hospital, earned $665,732 in salary and $73,715 in benefits ($739,447 total), according to the hospital’s public IRS filings.

Michael Guley, president and CEO of Saints Medical Center in Lowell, earned $503,530 in salary and $19,394 in benefits ($522,924 total).

Christine Schuster, president of Emerson Hospital in Concord, earned $621,585 in salary and $17,386 in benefits ($638,971 total).

Those salaries for the year ending Sept. 30, 2007, are the most recent available data.
CEO compensation represents, on average, less than two-tenths of 1 percent of the net revenues of a hospital, Nicholas said.

"Certainly, it is not an issue in of itself that is driving up costs," she said. "I would argue that in order to bend the cost curve and provide better value, one would want the most capable person to do that job."

Still, David Schildmeier, spokesman for the Massachusetts Nurses Association, said nonprofit hospital executives should be examined as warily as are Wall Street executives who are being well paid with federal bailout money.

"The first cuts that need to be made are their salaries," Schildmeier said. "They’re outrageous, given that (in some cases) they’re running hospitals inappropriately by cutting staffing and putting patients at risk. These people reap the benefits of being nonprofits but try turning their hospitals into factories."

At Saints Medical Center, senior management personnel took a 5 percent cut in salary this year "as a sign of the times" and "to help our organization," Guley said.
Guley contends that executive salaries at nonprofit hospitals are more scrutinized than executive pay in most any other industry, and they are fair.

"My salary is that of a CEO with over 35 years experience at this," he said. "It is probably one of the most complex industries out there. A lot of stress. A lot of hours. You’re working with a lot of different constituencies. I think (hospital executive salaries in general) are fair. Other industries (outside the nonprofit sector) pay CEOs with the same responsibilities a heck of a lot (more)."

Amanda McFadgen, a spokeswoman for Lowell General Hospital, said Deschene’s compensation "is in line with the national and state averages for similarly sized hospitals."

McFadgen said the compensation committee assigned by the LGH board of trustees "follows a careful process that meets IRS guidelines to determine the appropriate level of pay for our executives."

A statement released through Emerson Hospital’s public-relations department said its board sets executive pay rates by "gauging executive performance and keeping an eye on the market for leadership talent" and "is mindful of (its) responsibility to preserve the mission and financial stability of Emerson Hospital."

State Sen. Steve Panagiotakos, who had been calling for Lowell’s two nonprofit hospitals to merge for efficiency purposes (Saints has since signed an agreement to partner with Covenant Health Systems of Lexington), has no data to indicate executive salaries at Lowell’s hospitals are exorbitant by industry standards.

Generally speaking, Panagiotakos said, in the current economy, "the bottom line is that everybody, from state government to local government to nonprofits, needs to try to become as efficient as humanly possible."

Nationally, on average, presidents of nonprofit hospitals earned $490,431, according to results from a 2006 IRS questionnaire answered by 485 hospitals.
Executive compensation was only one part of an IRS report on tax-exempt hospitals released last month. Every hospital in the IRS study reported using "comparability data" and "independent personnel" when establishing compensation for executives, said Lois Lerner, director of the IRS Exempt Organizations Division.

"Still," Lerner said in a statement when releasing the report last month, "the compensation amounts reported as paid to top management officials will be considered high by some."

More than half of the 5,708 registered hospitals in the U.S. are non-government and nonprofit, receiving tax exemptions totaling between $12.6 billion and $20 billion, according to Senate Finance Committee staff numbers provided to The Boston Globe.