July 8, 2013

Amid cuts, Maine hospitals still paying million dollar salaries

Critics say medical facilities plead poverty and lay off workers but continue to compensate executives and surgeons with substantial payouts.

By J. Craig Anderson canderson@pressherald.com
Staff Writer

Ten hospital employees in Maine were paid more than $1 million in 2011, including one former executive who received more than $2 million, according to the latest financial data released by the Internal Revenue Service.

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Maine Medical Center in Portland, which announced a hiring freeze in the spring, began offering voluntary retirement buyouts to 400 employees about two weeks ago, citing a $13.4 million operating loss in the first half of its fiscal year.

Maine Sunday Telegram file photo/John Patriquin

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Critics say such high salaries contribute to Maine's economic woes and restrict access to affordable health care, just as the state's hospitals are about to receive an estimated $484 million in state and federal funds.

Six of the executives and physicians who made $1 million or more work for Maine Medical Center in Portland or its parent company, MaineHealth.

Overall, the average salary for Maine's top hospital and health care group executives was slightly higher than the national average, according to a Maine Sunday Telegram analysis of the data, which were released this spring.

While industry representatives say Maine hospitals still pay less than their counterparts throughout the Northeast, some state lawmakers and medical professionals have criticized the level of compensation, saying it contributes to the high cost of health care in Maine.

That criticism comes after Maine Medical Center, which announced a hiring freeze in the spring, began offering voluntary retirement buyouts to 400 employees about two weeks ago, citing a $13.4 million operating loss in the first half of its fiscal year. Other hospitals in Maine have also had financial problems recently: Eastern Maine Medical Center in Bangor announced plans to eliminate 17 positions in its laundry, and Parkview Adventist Medical Center in Brunswick announced it would close its intensive care unit and eliminate 16 positions.

The state has also weathered a long battle among its political leaders over how and when to pay about $184 million in overdue MaineCare subsidies to hospitals for 2009 through 2012. Once paid, the federal government will contribute another $300 million to Maine hospitals. Gov. Paul LePage signed a bill in June to pay the funds.

Presidents and chief executives at 36 of Maine's 39 nonprofit hospitals and their parent organizations earned an average base salary of $339,620 during the 2011 fiscal year, which for hospitals began in September 2010.

That's about 1.3 percent higher than the national average of $335,300 for the same period, according to a survey of more than 1,250 hospitals by Philadelphia-based consulting firm Hay Group.

When bonuses and other compensation were added to the equation, the average pay for a top Maine hospital executive in fiscal 2011 was $480,328.

Three Maine hospitals are not required to report financial data to the IRS: Cary Medical Center in Caribou, Mayo Regional Hospital in Dover-Foxcroft, and New England Rehab Hospital in Portland. Those hospitals are covered by an exemption for fully or partly government-run institutions.

Most nonprofit organizations, including hospitals, are required to fill out a financial disclosure form each year with the IRS, known as a Form 990. The most recently available forms are for the 2011 fiscal year.

Sen. Geoffrey Gratwick, D-Bangor, Senate chairman of the Legislature's Insurance and Financial Services Committee, said Mainers can't afford to continue paying the state's hospital executives the kind of money they currently receive.

Because all of Maine's hospitals operate as nonprofit organizations, and because salaries factor into the cost of charity care and Medicaid, they have an impact on the cost to all taxpayers, not just those receiving care, said Gratwick, who is a practicing physician in Bangor.

"High medical costs in Maine are destroying the Maine economy," he said.

But not everyone believes the top salaries at Maine hospitals are too high.

Steven Michaud, president of the Augusta-based Maine Hospital Association, said his organization's data consistently show that hospital CEOs in Maine earn about 6 percent less than average for the Northeast region.

Given the difficulty of running a hospital in a rural state with so many older residents and a relatively low percentage of Medicare reimbursement, he said Maine's top hospital executives have more than earned their current salaries.

"I'd say my CEOs are doing an incredible job given the environment and deserve every penny they get," Michaud said.

THE MILLION-DOLLAR CLUB

According to the IRS filings, the highest-paid hospital executive in fiscal 2011, not including those who received one-time retirement or severance payouts, was William Caron Jr., president of Maine Medical Center's parent company, MaineHealth. He earned a base salary of $1,058,110 and bonus payments of $69,896 for a total compensation of $1,128,006.

In all, six of the hospital employees earning $1 million or more worked for Maine Medical Center or its parent company, including two executives and four physicians.

Including one-time payments, the highest-paid executive at any hospital in Maine was Daniel Coffey, president and CEO of Acadia Hospital, in Bangor. In addition to his $356,359 salary, Coffey received retirement and other compensation totaling $1,696,795 for a total of $2,053,154.

The bulk of that money was a one-time, supplemental retirement payout totaling more than $1.6 million, according to Jeff Sanford, vice president and system controller at Eastern Maine Healthcare Systems, which owns Acadia and other hospitals in eastern Maine.

Sanford added that the money for the payout was set aside over many years and did not come directly out of Acadia's 2011 budget.

The highest-paid physician at a Maine hospital in 2011 was Dr. Marc Christensen, a neurosurgeon at St. Mary's Regional Medical Center in Lewiston, who earned $1,377,318.

St. Mary's marketing director Russ Donahue said Christensen is renowned in his field, and that higher-than-usual pay is needed to retain top specialists in communities such as Lewiston.

"Recruiting and keeping neurosurgeons in a region like central Maine requires higher compensation than that offered to many other physicians, due to the scarcity of these specialists," Donahue said.

The smallest Maine hospital with an employee who received more than $1 million in fiscal 2011 was The Aroostook Medical Center in Presque Isle. David Petersen, former CEO of Aroostook, received a base salary of $203,947 plus $840,129 in retirement benefits and other compensation for a total of $1,044,076. He is now retired.

Rep. Richard Farnsworth, D-Portland, House chairman of the Health and Human Services Committee, said he objects in particular to high executive pay at hospitals in smaller communities, where the average salary is relatively low.

"That's outrageous," he said. "It really goes far beyond what's reasonable for wages up there."

The Portland Press Herald/Maine Sunday Telegram asked both Democratic and Republican legislative leaders for comment. Only Democrats responded.

New Gloucester resident James Parisi, a former respiratory therapist at Central Maine Medical Center in Lewiston, said he is angered by how much Maine's top hospital executives receive.

Parisi said he resigned after a five-year period in which his hourly wage increased by a total of just 2 percent.

"They plead poverty but continue to pay outrageous executive salaries, while the real workers get their wages cut, benefits cut, etc.," he said.

THE COST OF TALENT

Hospital consultant Alexander Yaffe of Towson, Md.-based Yaffe & Co. Inc. said it can be difficult for hospitals to recruit and retain top-quality executive talent because such jobs require extensive knowledge of both medicine and business.

"Health care is tremendously complex, both as a physician and as a CEO," Yaffe said. "It's not like selling cars or making widgets."

Both Farnsworth and Gratwick agreed that running a hospital is an extremely demanding job, and that to some extent, hospitals tend to get what they pay for when it comes to executive salaries.

"It isn't an easy job to do," Farnsworth said. "It really is a complex system to navigate."

One key national trend reflected in the Maine hospital financial reports was a strong emphasis on performance-based pay.

Nearly all of the highest-paid hospital employees in Maine received compensation beyond their base salaries in 2011, much of it performance-based.

Yaffe said in recent years, hospitals across the United States have made a higher percentage of compensation contingent upon meeting specific goals, such as patient volume or revenue.

Today, 75 percent to 90 percent of hospital executives nationwide receive some form of performance-based pay, he said.

Yaffe thinks that's a problem, because performance-based compensation rarely hinges on the quality of services provided.

"Right now, it's all about volume," he said. "The more business you do, the more you get paid."

Still, there is a movement afoot to incorporate quality into the equation, especially for doctors and nurses, Yaffe said.

"There is an open question about whether the way in which hospitals compensate executives will also change," he said.

Gratwick said the prevailing mentality among hospital executives that their nonprofit institutions should be operated like businesses is bad for Mainers, because it only contributes to the high cost of services and medications.

"We've created a monster with our health care system here," he said.

There is usually a strong correlation between a hospital's size and the amount of money its top administrators earn, Yaffe said, although top executives at small hospitals still tend to receive compensation well into six figures.

That is true in Maine, where the highest-paid executive, Caron, works for the parent company of the state's largest hospital, Maine Medical Center, which reported net patient revenue of more than $754.2 million to the Maine Health Data Organization for fiscal year 2011.

Hospitals report two revenue figures: net and gross. Gross revenue reflects the full retail price of services before insurance providers negotiate discounts.

It is not a true reflection of what a hospital collects, Sanford said. Net revenue is the true amount a hospital receives after discounts, he said.

The state's smallest hospital in 2011 in terms of net revenue had the sixth-lowest-paid chief executive. Eugene Murray Jr., president and CEO of Charles A. Dean Memorial Hospital, earned $160,250 in base salary plus $42,458 in additional compensation for a total of $202,708.

Dean Memorial, in Greenville, had net revenues just under $13.6 million in fiscal 2011, according to the Maine Health Data Organization.

Maine's smaller hospitals also spent a much higher percentage of revenue on executive compensation than large hospitals and health care groups.

While Caron's salary was equivalent to about 0.15 percent of Maine Medical Center's fiscal 2011 revenue, Murray's salary cost Charles A. Dean Memorial 10 times that amount, 1.5 percent of its revenue for the same year.

The hospital employee who cost his organization the highest percentage of its revenue in 2011 was David Rideout, a surgeon at Charles A. Dean Memorial. His total compensation of $371,108 equaled more than 2.7 percent of the hospital's revenue for that year.

BUDGET CRUNCH

When it comes to budgeting, hospitals have been hit by declines in patient volumes and revenue from the federal Medicare and Medicaid programs, the Maine Hospital Association's Michaud said.

In Maine, the long wait to receive MaineCare funds going back to 2009 has made the problem even worse, Michaud said.

"It's certainly not just on paper," he said about the estimated $484 million in funds owed by the state and federal governments. "It's real money."

The state's hospitals now expect to receive those funds, Michaud said, but the current deficit has forced many of them to take on debt in order to make payroll.

"If (the MaineCare money) was never paid, that would be disastrous," he said.

Nationally, the average CEO pay at hospitals has decreased since 2011 to $320,486 in 2012, according to a recent Yaffe & Co. study. However, it is still up 13.9 percent from 2007's average of $281,351, the study found.

Michaud said many hospitals in Maine have been forced to institute hiring freezes and layoffs, and salaries across the board have been frozen or cut.

While Gratwick said he believes Maine hospital executives earn too much, he doesn't think slashing their salaries would fix the state's larger issue of prohibitively expensive health care.

"Simply decreasing salaries is not the solution to our health care problems," he said. "It's more systemic than that."

J. Craig Anderson can be contacted at 791-6390 or at:

canderson@pressherald.com

Twitter: @jcraiganderson

 

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