With Maine’s economy spiraling downward and unemployment spiraling up, even hospitals — typically the cornerstones of employment security — are feeling the pain.
In response to declining revenues, hospitals large and small have announced cost-trimming measures ranging from canceling magazine subscriptions and curtailing travel expenses to eliminating nonessential health services and even laying off staff.
In this atmosphere, the issue of executive compensation can be a touchy one, especially considering that all but one of Maine’s hospitals are nonprofit institutions, accountable to the communities they serve and not to investors.
There are 38 private, nonprofit hospitals in Maine. That figure includes two psychiatric hospitals: The Acadia Hospital in Bangor and Spring Harbor Hospital in Westbrook.
There are two public, state-run psychiatric hospitals: the Dorothea Dix Psychiatric Center in Bangor and the Riverview Psychiatric Center in Augusta.
In addition, there is one private, for-profit facility, the New England Rehabilitation Hospital in Portland.
Chief executive officers at Maine’s private, nonprofit hospitals earn healthy salaries and significant contributions toward their retirement accounts. In 2006, Maine’s smallest hospital, the 14-bed Charles A. Dean Memorial Hospital in Greenville, paid CEO Eugene Murray a salary of $142,452, along with $24,752 in the form of contributions to his benefit plan and retirement account. At the other end of the spectrum, CEO Vince Conti at the 606-bed Maine Medical Center in Portland was paid a salary of $1,167,868 that year, and benefits valued at $259,163
In between are three dozen hospital CEOs earning six-figure salaries and comfortable benefit packages. Not counting the top executives at four small Maine hospitals that contract with the private Tennessee-based company Quorum Health Services for their administrators, the CEOs pull down a tidy total of at least $13,774,790 — almost certainly more now, since the federal tax information used in the chart is as much as two years old.
“From ordinary people’s point of view, it’s hard to understand why someone should be paid so much to run a big institution,” said Christopher St. John, executive director of the Maine Economic Policy Center. “We can complain about a handful of CEOs making an amount of money that seems astronomical, but what portion of health care dollars does it really represent?”
According to a recent national survey of all nonprofit hospitals, median CEO compensation at free-standing hospitals — those not affiliated with a larger corporate system — rose by 10.6 percent between 2007 and 2008, from $449,300 to $497,000. At system hospitals, median CEO compensation rose by 6.3 percent, from $371,600 to $395,000.
The survey was conducted by the private consulting firm Sullivan, Cotter and Associates and published in the July 28, 2008, issue of the hospital trade journal Modern Healthcare.
In addition to their salaries and benefits, which are a matter of public record, nonprofit hospital CEOs also enjoy a number of other perks and amenities that typically are not reported. A 2006 U.S. Government Accountability Office survey of 100 hospital systems across the country found that personal vehicle expenses, access to sporting events and other entertainment, financial planning and annual tax preparation, travel expenses for a spouse and membership in recreational and social clubs are often included in the executive compensation package.
The GAO survey also found that most hospitals, large and small, use some standard practices to determine executive salaries. These include:
• Having an executive compensation committee of the governing board with responsibility for approving executives’ base salary, bonuses and perquisites.
• Adopting a conflict-of-interest policy that covers members of the compensation committee, ensuring they have no personal or professional stake in executive salaries.
• Using comparable market data to arrive at appropriate compensation and benefits.
‘Reasonable and fair’
Brian Rines, board chairman at Spring Harbor Hospital in Westbrook, said in a recent interview that trustees review a wide range of data — including executive salaries at comparable facilities in New England, the CEO’s past performance, and measurable progress toward institutional goals before deciding on a compensation package.
“We set a figure we believe is reasonable and fair for the hospital and the community,” he said. “We’ve got to be careful that employees and the larger community feel it is fair.”
The Spring Harbor board is made up of former patients, parents of patients, community leaders and clinical providers.
“We like to think our trustees are a reasonably good representative selection of the community and its leadership,” Rines said.
Rines said it can be hard to attract qualified administrators to Maine.
“We don’t have a lot going for us,” he said. “Salaries tend to be lower, you have to really like the climate, and you have to work in an adverse business environment,” he said. Rines said Maine’s lower-than-average payments from Medicare and Medicaid, and most hospitals’ heavy reliance on these public programs, set the stage for financial headaches.
In addition to balancing hospital budgets, CEOs are ultimately responsible for patient safety and satisfaction, management and maintenance of facilities, developing new technology such as the electronic medical record, recruiting and retaining clinical providers, and other critical tasks. In many cases, they also are in charge of multiple affiliated organizations such as medical practices, nursing homes, laboratory services, fundraising and philanthropy operations, and more.
“The person that comes to us today has to come with an incredible portfolio,” Rines said. “This is one of the most complicated jobs in the world.”
Sharing the pain
When hospitals start feeling the pain of an economy in free fall, CEOs must make tough decisions to cut costs. In recent weeks, hospitals in Maine have undertaken a number of measures, including eliminating positions, reducing employees’ hours, and laying off nonessential workers.
At Southern Maine Medical Center in Biddeford, CEO Edward McGeachy cut his own pay by 5 percent in January. Following his lead, vice presidents at the hospital took a 3 percent cut, and department directors took a 2 percent cut — voluntarily.
SMMC spokeswoman Susan Hadieri said the salary reductions will stay in effect for at least six months.
Other budget-sparing measures at the hospital include an across-the-board elimination of two paid vacation days for all employees, a 5 percent reduction in departmental budgets, suspension of planned improvements, and elimination of out-of-state travel.
“Our goal is to retain jobs through these challenging times without impacting our quality of care,” Hadieri said. “We have not had any layoffs.”
The need to compete
Recent cutbacks announced at Eastern Maine Medical Center in Bangor included the elimination of some jobs, fewer hours for some employees, and suspension of some employee benefits. Cutting executive salaries was not part of the package.
George Eaton, board chairman for Eastern Maine Healthcare Systems in Brewer, the corporate parent of EMMC, said it is tempting to take aim at executive compensation in hard economic times.
“But that won’t solve the problem,” he said.
In 2008, Eaton said, the combined salaries of all the chief executives of the seven hospitals affiliated with EMHS, along with seven executive leaders of the EMHS corporate office, accounted for only about 0.5 percent of the organization’s $861.5 million budget.
Because competent health care executives are highly sought after, Eaton said, cutting salaries would likely lead to the loss of essential leadership, destabilizing the organization at a crucial time.
“Hospitals need to be competitive in executive compensation and we cannot afford to lose key personnel,” he said.
By making critical decisions, engaging in aggressive fundraising and other activities, “exceptional senior executives can and should add many multiples of what they cost to the value of the institution,” he said.
Eaton said CEO compensation packages within EMHS are determined using information from comparable institutions nationwide.
Base salaries target the national average, he said, with benefits and annual increases added as appropriate.
Eaton noted that the national average is lower than the average for the Northeast region, which includes large markets such as Boston, New York and Philadelphia.
Annual increases reflect the CEO’s recent performance, progress toward established goals and other factors, he said.
The job of the CEO is “incredibly complex,” working in “the most regulated environment in any industry,” Eaton said.
“The prudent thing to do is to get the best people you can,” he said, “and pay them what you need to in order to retain them — so long as they are achieving the performance goals set by their board.”
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