Health-care's top executive salaries increase with complexity of system - The Coloradoan

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Stacey, considered a rock star of sorts in the health-care field, could go to a much larger health system for considerably more money, said Errol Biggs, program director of the CU Health Administration program and longtime health-care executive. "He is grossly underpaid for what he's done."

During his tenure, PVHS won the prestigious Malcolm Baldrige award in 2008. Stacey also served as president of the American College of Healthcare Executives, brokered the partnership with University of Colorado Hospital and created Poudre Valley Medical Group, that now includes more than 100 physicians working directly for PVHS, Biggs said.

Stacey, the most heavily recruited, most visible health-care CEO in America, said he's committed to Poudre Valley and University of Colorado Health. "We've been recognized by the president of the United States for our accomplishments in putting patients first. I'm not sure I can imagine a better professional situation than that. Starting a new statewide health care system from the very beginning is an opportunity that might only come around once in a career."

The top salaries for CEOs at for-profit hospitals nationally top $10 million with the CEO of Community Health Systems in Tennessee getting a total compensation package of $21.58 million, dwarfing any salaries seen in Northern Colorado.

Non-profit health systems have a greater obligation to the community because of the tax breaks they receive as a non-profit, said Denise "DeDe" de Percin, executive director of the Colorado Consumer Health Initiative.

"If you're talking about CEO compensation the question is, 'what does that mean in terms of monies diverted from community care,I especially in a state that has an above average number of uninsured and underinsured?'" she said.

PVHS' revenue last year from its two major hospitals and 41 other facilities under its umbrella was $744.2 million.

In 2010, it provided $3.65 million in charity care at Poudre Valley Hospital and Medical Center of the Rockies; wrote off $5.7 million in bad debt and ate about $33 million in unreimbursed costs from Medicaid and Medicare.

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While the amount of charity care and bad debt dropped in 2010 compared to 2009 unreimbursed costs rose considerably. It is difficult to determine how much of that free care and bad debt went to uninsured patients.

In 2011, 829,000 Coloradans lacked health insurance, up from 678,000 in 2009 and most cite cost as the main reason. That often drives the uninsured to hospital emergency rooms, the most expensive place to get care.

de Percin also worries about the lack of transparency and community accountability that can accompany health systems that keep getting larger.

With PVHS' partnership with UCH, the newly formed University of Colorado Health system employs more than 9,700 workers with annual revenue of $1.6 billion

"There are some questions as to whether they can have it both ways: Be not-for-profit but not accountable to the community," she said. "That is a huge concern."

As health systems become bigger and more complex "the question becomes how much is too much (in salaries)? It's a legitimate question to ask," de Percin said.

Three hospitals in Illinois recently lost their non-profit status because they were not providing as much "public benefit" as the state thought they should.

The CEO of Arizona-based Banner Health, which runs 23 hospitals including McKee Medical Center in Loveland, North Colorado Medical Center in Greeley, and more than 100 non-hospital facilities, had a total compensation package in 2010 of $4.14 million, including a $1.06 million base, $1.7 million bonus and $1.28 million in deferred retirement.

It's difficult to discern the pay of top executives at McKee Medical Center in Loveland and North Colorado Medical Center in Greeley because they fall under the Banner Health umbrella and are not listed separately on the IRS 990 forms. But NCMC chief executive officer Rick Sutton in 2010 earned a base salary of $335,000 with about $200,000 in bonuses. His base salary remained virtually unchanged from 2009 to 2010.

The chief executive officers at Boulder Community Hospital and Longmont United Hospital earned $895,000 and $582,000 in total compensation respectively in 2010, according to the 990s.

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PVHS' new partner, the University of Colorado Hospital, did not file any 990s with the IRS and it declined to release compensation packages for its top executives.

UCH General Counsel Allen Staver wrote in a letter denying the Coloradoan's request under the state's Open Records Act, that the health system is not subject to the Open Records Act.

Raising compensation

At a time when hospital executives average base salaries increased by 3.1 percent in 2011, PVHS executives got smaller raises of about 2.3 and 2.4 percent, except for the chief information officer who saw his base compensation rise nearly 19 percent as he took on dual roles as CIO and vice president of human resources, a health system spokesman said. Non-executive pay went up 2.3 percent in 2010 and 3 percent last year.

"The differences we have seen in the past couple years have to do as much with the overall economy as with any sort of health care reform," said Kevin Talbot, executive vice president and practice leader for Integrated Healthcare Strategies,

This year's raises will average between 2.5 and 3 percent, he said.

"The economic environment has caused organizations to be a little more cautious with salary increases across the board," Talbot said.

Scrutiny around executive compensation "has caused compensation committees to pay a lot more attention to how they administer executive compensation," he said. "They're being more cautious and diligent with governance and that's a trend we expect to see continue."

Executive pay, while still based on performance, is being tied more closely to metrics that will impact how organizations are reimbursed under health care reform. Metrics such as patient satisfaction, quality of care and cost of services, said Talbot, who served on a 2011 national health care leadership compensation board.

"If I was a consumer, the things I would want to reward a hospital for include providing improved care, some metrics by which the patient is getting better faster, getting quality care at quality costs," said Danny Katz, director of CoPirg, who helped create the framework for the Colorado Health Benefit Exchange.

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CoPirg hasn't specially looked at health care compensation, but Katz said if a hospital is improving the quality of care, providing access to care, and running a quality hospital, "it would make sense" to compensate the executives accordingly.

"If a hospital is struggling and not doing these things it doesn't make sense. It would raise questions if hospital CEOS were being heavily compensation but actually not doing anything special."

Paying for talent

Still at the forefront of the salary debate is an organization's desire to be competitive in terms of compensation to get the best talent, experts say.

"Health care is changing so much it makes sense that the type of person they recruit for those roles will evolve as well. It will ratchet up the competition for the best talent," Talbot said.

The health system changed PVHS' pay structure this year decreasing base pay for all top executives but increasing bonuses based on goals set by the board of directors such as patient outcomes and efficiencies, patient satisfaction and employee satisfaction, said Quirk of The Hay Group. "The Balridge award was an external endorsement of all the good things they have done," he said.

The average annual incentive payment for CEOS of nonprofit health care organizations is about 30 to 50 percent of salary, according to the 2010 Hay Group Healthcare Survey.

PVHS declined to release this year's compensation packages until it files its 2012 IRS documents. But Quirk said Stacey's base pay is ow about $818,000 with potential bonuses between 30 percent and 50 percent of his base.

"You don't want to put too much into the base salary, but you want it to be competitive," Quirk said. That allows boards of directors to reward executives for advancing the organization and meeting goals.

Stacey's role is changing this year as he becomes CEO of University of Colorado Health overseeing a system with $1.6 billion in revenue, 824 patient beds and nearly 10,000 employees.

The system expects to add Memorial Hospital in Colorado Springs to its network, which will grow University of Colorado Health to one of the largest health systems in the state.

PVHS also considers the compensation of other executives in similar positions at similar health systems in determining pay, said Chris Osborn, PVHS board of directors' chairman, in an email to the Coloradoan. That's where The Hay Group comes in.

After the review is finished, the PVHS board's compensation committee — made up of independent directors — evaluates the information and recommends any salary adjustments to the full board.

"Emphasis is placed on comparing positions, responsibilities and duties within the context of PVHS' long-term vision and mission," Osborn wrote.