ACHE focuses on executive compensation

I sat in on many sessions of the American College of Healthcare Executives annual congress in Chicago last month, but the most interesting one by far was a panel entitled "Executive Compensation in an Era of Declining Reimbursement."

For the record, I will disclose I could not attend the entire session, as I had afternoon deadlines to meet. Nonetheless, what I saw was a revelation.

There is a general obsession with money in this country, and everyone in a particular profession wants to know what their colleague makes. This session illuminated what is becoming an elephant in the room in healthcare: executive pay at non-profit institutions charged with healing the community. Three healthcare CEOs sat on this panel: Theresa Hamilton of the Fremont-Rideout Health Group in California, Joseph Swedish of Trinity Health in Novi, Mich., and Glenn Fosdick of the Nebraska Medical Center in Omaha.

The presentation began mundanely enough, with session leader F. Kenneth Ackerman, chairman of Integrated Health Strategies, a Minneapolis firm that focuses on industry compensation trends, noting that CEO turnover was up last year. He also noted there are many CEOs without jobs. "I can think of four or five CEOs who are looking for work, and these are people who were heads of big enterprises," he said.

This makes sense: The Great Recession pulled the financial rug from underneath a lot of people, whether they worked in a service job or ran organizations with hundreds or even thousands of employees. And Ackerman noted that 40 percent of those CEOs who wound up losing their jobs were failing at them in the first 18 months, an abject lesson in how challenging their work is.

But Ackerman made another blunt statement to the group: "Eighty percent of the public thinks you're overpaid," and many are outraged at the levels of compensation."

As I noted in a previous commentary, self-polling occurred at this session. A slim majority of the executives present believed they were underpaid.

Another disclosure on my part: I came into this session extraordinarily well versed regarding what c-suite hospital executives in the states represented by Hamilton, Fosdick and Swedish earn, having combed through literally hundreds of 990 tax returns for the purposes of my job.

Those publicly available tax returns were looked on as a source of consternation. Ackerman noted that reporting on hospital pay in local newspapers has been doing some damage to providers. In Maine, it apparently triggered a proposal by a prominent politician that hospital CEO compensation be capped to what the governor earns, about $70,000. "These kind of dumb things happen, and will continue to happen," he said.

It was agreed that board members need to know what their executives are earning, but both Fosdick and Swedish noted that executive compensation i one of the most complicated issues their boards deal with. "You have community members such as teachers who sit on boards, and your pay is higher than theirs, and there is a discomfort dealing with it," Fosdick said.

Fosdick was the highest-paid of Nebraska's 36 not-for-profit hospital CEOs by a wide margin in 2008, having received total compensation of $1.2 million (the average statewide total pay is just over $291,000). Swedish enjoyed a similar distinction: His $2.65 million in total compensation for 2008 made him the highest-paid of 108 not-for-profit hospital CEOs in Michigan (the statewide average is about $466,000).

By contrast, Hamilton earned a relatively modest $397,850 in 2008. That's slightly more than half the average compensation for a hospital CEO in California.

The debate about who earns how much was an area of sensitivity in this session. According to Ackerman, the IRS is taking a much closer look at compensation at not-for-profits. "The median compensation (for your CEO) is okay," he said. "Above median is suspect." A potential audit and the loss of not-for-profit status due to executive inurement is probably the biggest nightmare a chief financial officer might face. It was suggested such events might indeed occur in the near future.

Based on the copy of Ackerman's presentation slides, he later delved into what drives up CEO compensation, including the comparison of pay at for-profit hospitals to not-for-profits, boards that are too close to their CEOs, and self-dealing.

I only wish I could have stayed. But I plan to reach out to Ackerman and provide an update sometime soon. - Ron