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Healthy pay for hospital heads

Critics call local CEOs’ salaries ‘indefensible,’ while supporters call them a ‘speck of sand’

By Chris Camire,

Updated: 07/31/2011 06:41:33 AM EDT

BOSTON — As health-care costs rise sharply and funding for Medicaid and Medicare is slashed, many top executives at taxpayer-subsidized hospitals are receiving six- to seven-figure compensation packages that increase each year.

In Greater Lowell, one CEO made more than $1 million in fiscal 2009, the last year tax records are available, and three others’ salaries topped $500,000.

Hospital officials argue that the salaries are needed to attract top-tier candidates and that they account for a tiny percentage of the health-care system’s struggles to control costs. Others say the hospitals are reaping the benefits of their nonprofit status, but operating like large corporations.

Locally, Normand Deschene, president and CEO



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of Lowell General Hospital, earned $676,991 in salary and bonuses for the year ending Sept. 30, 2009. He also received $841,071 in retirement benefits and $52,534 in other nontaxable benefits, for a total compensation package of $1,570,596.

During that same period, Michael Guley, the former CEO of Saints Medical Center in Lowell, earned $513,389 in compensation and $24,917 in nontaxable benefits, according to tax filings with the Attorney General’s Office.

Tax filings also show former Lahey Clinic CEO David Barrett earned more than $1 million in base compensation, as well as bonuses and $211,500 in deferred compensation.

Christine Schuster, president of Emerson Hospital in Concord, earned $508,261 in compensation and $43,255 in benefits, according to tax filings.

Pay not driving high costs

Lynn Nicholas, president of the Massachusetts Hospital Association, a health-advocacy organization that represents hospitals throughout the state, said hospital executives’ pay is not connected to ballooning health-care costs.

"When you examine what’s driving health-care costs, salaries of executives are like a speck of sand on the beach," Nicholas said. "The real drivers are chronic disease, the way the payment



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system is aligned, and so many more issues."

Nicholas describes hospitals as complex organizations that require the "best and brightest" to operate efficiently. She said hospital executives have a "24/7, 365-day" job that comes with tremendous stress and responsibility.

"Most of these CEOs could run any major American corporation in their sleep," she said.

Unlike major corporations, however, nonprofit hospitals receive tax breaks, as charities, on state, federal, sales and property taxes. Some argue that these tax breaks are outdated, and question whether fee-for-service organizations like hospitals should receive the same tax exemptions as other types of charities.

Jon Hurst, president of the Retailers Association



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of Massachusetts, acknowledges the complexity of running a hospital, but said the salaries of top executives send the wrong message.

"I don’t have a problem with small increases in a good economy, but to see double-digit increases in a bad economy is just wrong and indefensible," Hurst said. "The increases shouldn’t just slow. They need to be cut."

Hospitals throughout the state are facing a financial squeeze from cuts to Medicare and Medicaid.

Reimbursements from Medicare, the federal health-insurance program for people 65 and older, are expected to be cut by $5 billion nationally this decade. Massachusetts has frozen reimbursement rates for Medicaid, which covers treatment for the poor.

Private insurers are also in the process of reducing the amount they pay hospitals in an attempt to slow premium increases.

Longevity a key

Lowell General Hospital has avoided the struggles some community hospitals are facing due to sound management, hospital spokeswoman Christine Scaplen said. The hospital reported an $11.6 million profit in fiscal 2010 and is in the midst of a $95 million expansion.

At Lowell General, a compensation committee assigned by the hospitals’ board of trustees compares salaries of executives in similar roles at other hospitals, considering such factors as length of tenure and performance. Deschene has been with the hospital for 27 years.

"That’s really unusual to have a seasoned executive with you for that long," Scaplen said. "Having that stability and that longevity brings with it a compensation that goes along with what that person has contributed and continues to contribute throughout the organization."

But Patty Sullivan, a bedside nurse at Lawrence General Hospital, said patients are not getting their money’s worth when hospital salaries approach or top $1 million annually.

"You’re getting hospitals planning to discharge you as soon as you come through the door," said Sullivan, speaking on behalf of the Massachusetts Nurses Association, a union group. "Tell me why there are not enough nurses to staff a floor, but this person is earning $1 million a year?"

The average compensation nationally for a hospital CEO was $452,400 in 2010, according to Healthcare Strategies, a business consultant specializing in the health-care industry. The average salary for the CEO of a health system was $683,000.

Increases will continue

Nicholas expects Massachusetts hospital executives’ salaries to continue to rise in the coming years. She said the job will become more complex and demanding due to legislation Gov. Deval Patrick is pushing to improve patient care while limiting expensive but often unnecessary tests.

The bill Patrick filed in February would move the state toward a payment system in which doctors would receive an annual budget for each patient’s care, rather than having them pay a fee for each service or test provided. The bill is designed to not only slow the growth of premiums, but reverse it.

The overall goal would be to reduce significantly fee-for-service payments and replace them by 2015 with alternative payment methods.

"Because of the new forms of payment and understanding care management for various populations and all the new insurance components that will come with that, the pressure to have the most capable people possible will continue to grow." Nicholas said.



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