Hospital CEOs get seven-figure salaries, country club memberships

Baltimore-area hospital CEOs and presidents boast seven-figure salaries, club and gym memberships, and paid financial planning and tax services as part of compensation packages from their nonprofit employers.

Nearly a dozen hospitals cover country club dues for top executives. Carroll Hospital, in reporting the compensation to the IRS, disclosed that it requires its chief executive officer to be a member of the exclusive local clubs "to facilitate hospital interaction with the community" and because of the "potential for donors."

At the Greater Baltimore Medical Center, top executives were given thousands of dollars to spend on health equipment, tuition and other personal expenditures.

And when they retire, many hospital heads walk away with payouts that top $1 million.

According to a survey of Baltimore-area hospitals, the highest-ranking executives were often the recipients of financial payouts and perquisites that many private-sector companies have abandoned in the face of intense public debate about excessive CEO pay. The heads of hospital systems, which oversee many facilities, tended to make the biggest salaries and incentives. Eight top executives made more than $1 million, and the largest CEO pay package totaled $7.8 million.

The Baltimore Sun analyzed the compensation packages of the CEOs and presidents from 27 Baltimore-area hospitals and health systems using the 990 forms they must file with the Internal Revenue Service each tax season. The survey relied on forms from the fiscal year 2009, the most recent available.

Hospital executive pay has raised the ire of critics who questioned whether nonprofit hospitals, which get tax breaks and donations to help the poor, should be doling out such hefty compensation for their CEOs. Some pointed out that a number of hospitals have come under fire for aggressive debt collection tactics with patients.

"We've had CEOs get golf club memberships and trips on yachts and things like that," said Ryan O'Donnell, executive director of Common Cause Maryland. "You have hospitals in Maryland where part of their mission is to provide nonprofit care, but then they're going after people who can't pay during tough economic times. It doesn't make sense to do that when they're paying CEOs these salaries."

Compensation for hospital executives is expected to come under increasing scrutiny as more transparency is mandated.

For the fiscal year 2009, the IRS beefed up what it requires hospitals and other nonprofits to report about compensation. The changes were prompted by audits showing discrepancies in what nonprofit hospitals across the country were disclosing.

And legislation passed by the Maryland General Assembly last year requires the state to make hospital IRS filings more accessible to the public. The filings are already public but can be difficult for the average person to obtain. Now, they're posted on the website of the Maryland Health Services Cost Review Commission, the agency that sets hospital rates.

Sen. George W. Della Jr., a Baltimore City Democrat, introduced the bill in the Senate after reading reports about hospitals' debt collection practices. With the latest disclosures of pay packages, one stood out for Della — that of former University of Maryland Medical System CEO Edmond F. Notebaert, who left with the $7.8 million pay package despite resigning amid turmoil and controversy.

"Some of the salaries are over the top as evidenced by Notebaert over at University of Maryland," Della said. "That was more than over the top. Maybe that compensation to Notebaert wouldn't have happened to the extent that it did if everybody was cognizant of it."

Hospital compensation committees contend that they need to offer competitive pay packages to hire the best talent. Many hospital executives have business backgrounds and could easily be lured away by big corporations, they say.

They hire consultants to ensure that what they are paying is on par with what other hospitals of comparable size pay. They also don't want to run afoul of IRS rules that penalize hospital executives who make significantly more than executives at comparable hospitals.

St. Joseph Medical Center, a member of Catholic Health Initiatives, said in a statement that it offers a level of compensation that allows it to compete for talent. The hospital paid former CEO John K. Tolmie $846,128 in salary, bonus and other pay, the latest IRS filing shows.

"Hospital CEOs have one of the most demanding, high-pressure jobs in the nation, dealing on a daily basis with everything from ever-changing regulations to workforce shortages and lower reimbursement for services," the hospital statement said.

Tolmie resigned in May 2009 after being on administrative leave to avoid a conflict of interest during a federal investigation. Since then, one of the hospital's cardiologists, Dr. Mark G. Midei, has been accused of performing hundreds of unnecessary heart procedures. According to the filing, Midei made $1.3 million in the fiscal year 2009.

St. Joseph officials said it is not unusual for an established physician to make more than a CEO.

"Just as different executives are paid differently according to the market based on specific skills and experience, so, too, are physicians of different specialties compensated differently," the hospital said in a statement. "Thus, it is not unusual for a highly trained specialist in a highly ranked specialty with additional administrative responsibilities, to earn more than the CEO."

Mercy Medical Center head Thomas Mullen made $1.08 million in compensation during fiscal 2009. The hospital said in a statement that it "believes this compensation to be appropriate given the responsibilities of serving as a president and CEO of a $520 million health system."

Edward Miller, CEO of Johns Hopkins Medicine, made $729,297. He also gets paid separately for his position as dean of the School of Medicine at Johns Hopkins University. The fiscal 2009 filing for the medical school was not yet available. But Miller collected $1.4 million for that job the year before.

Ronald R. Peterson, president of Johns Hopkins Health System, earned a total compensation package of $1.9 million in the most recent filing period.

"If you have an organization that wants to be tax-exempt, one of the tradeoffs is you want to be transparent," said Shale D. Stiller, a partner with DLA Piper law firm and head of the compensation committee at Hopkins for almost a decade."If Hopkins wants to be tax-exempt, it has to be more transparent. I don't have any problems with the additional requirement that the 990 makes. Hopkins has always been above-board."

Some compensation packages swelled with severance or retirement benefits triggered by a CEO's exit.

Notebaert, who was the highest-paid CEO in fiscal year 2009, resigned in August 2008 and took home a $7.9 million compensation package, including $5.9 million in severance. Notebaert's compensation also included a financial planner and tax preparer.

Hospital officials have said that Notebaert's compensation was justified because of his experience and accomplishments while working at the medical system. The system added Shore Health System and Chester River Health System to its roster of institutions during Notebaert's tenure. Total profit reached $301 million while he was at the helm, compared with $49 million in the preceding five years, according to the medical system.

Robert A. Chrencik, who took over as CEO after Notebaert's departure, earned more than $1 million in compensation during the reporting period. He was previously the medical system's chief financial officer.

Among the highest paid retirees was James R. Walker, the former president of Baltimore Washington Medical Center, who received a compensation package of $3.4 million that included $2.9 million in retirement benefits.

At GBMC, former CEO Laurence Merlis was compensated $989,624. While other executives received expense accounts of up to $5,000 for club memberships, tuition and health equipment, Merlis got his own discretionary spending account. "The amount of the account was established in his employment agreement and is not required to be substantiated," according to the IRS filing. Merlis retired in January.

Patricia J. Mitchell, chair of the GBMC board's compensation committee, said in a statement that the discretionary spending account "no longer exists." She added that "executive compensation is linked to specific performance measures including clinical quality, patient safety, patient, physician and employee satisfaction and financial results."

While the additional disclosure requirements are expected to shine a brighter spotlight on hospital executive pay, it is unclear whether that will result in change.

The IRS made parts of hospital reporting more transparent, but it weakened others, said Marcus Owens, a partner with law firm Caplin & Drysdale, who was a lawyer with the IRS for 25 years.

Hospitals no longer have to report deferred compensation executives would get if they reached certain anniversary milestones with the company, Owens said. Now they only have to report such compensation when it is actually paid out.

But the new rules do require more information on other business relationships and pay, such as compensation from another entity within a hospital system.

On the state level, officials don't have the authority to tell hospitals what they can pay a CEO.

"We don't say you can only pay $800,000," said Robert Murray, executive director of the Maryland Health Services Cost Review Commission. "They don't have any limitations. If they are able to lower underlying costs and generate profit, they can decide to allocate some of the profit to higher salaries if they want."

This is the first year the commission has looked at executive salaries in such detail, Murray added, saying that the effort will bring attention to the issue.

"It's tremendously important that you don't ignore skyrocketing salaries or special perks when you're making decisions," said Common Cause's O'Donnell.

andrea.walker@baltsun.com

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