healthy4u: public hospitals

It is Harder to Run a Small Public Hospital System than California? - Deep Seated Myths and Logical Fallacies Underpinning Health Care Executive Compensation

Hospital executive compensation, the gift that keeps on giving...  A Public Hospital CEO's Current Compensation A recent, somewhat obscure news article shows how deeply rooted is the current practice of paying top hired managers of health care organizations amounts that seem outlandish given the context. The <a href="http://www.mercurynews.com/breaking-news/ci_22593751/fremont-hospital-ceo-gets-six-figure-bonus-after">article</a>, in the Argus - San Jose (CA) Mercury News, discussed the compensation given the CEO of a small public hospital district.  It opened with, <blockquote class="tr_bq"> Amid a budget crunch that has forced sweeping cutbacks at its medical facilities, the Washington Township Health Care District board of directors on Wednesday awarded its CEO $162,783 in incentive pay that raises her total annual compensation and contract perks this year to more than $800,000. The bonus pushes Farber's total 2012-13 compensation past $813,915, less than the $936,349 she made in 2011 or her $912,519 pay in 2010, when she was among the top five paid government employees statewide in a survey by the state controller's office. </blockquote> Note first that Washington Township Health Care District is a public health district.  As an <a href="http://www.mercurynews.com/breaking-news/ci_22451747/nurses-medical-director-among-jobs-cut-at-washington">article</a> from January, 2013 in The Argus - San Jose Mercury News explained, <blockquote class="tr_bq">The Washington Township Health Care District is a public agency in southern Alameda County and receives tax money from 320,000 district residents under voter-approved bond measures. </blockquote> The District is also under financial stress.  As the earlier Argus - Mercury News article stated, <blockquote class="tr_bq"> <div class="bodytext">Physician assistants, nurses and medical directors were among the 200 jobs recently eliminated by the Washington Township Health Care District to cut costs, according to new information released by the district.</div><div class="bodytext"> </div>In response to a request under the California Public Records Act, the district provided a list this week of the 75 job titles included in the approximately 132 vacant and 68 filled positions eliminated in recent months as part of a 13 percent workforce reduction. </blockquote> Furthermore, as the newer Argus - Mercury News article noted, <blockquote class="tr_bq"> Farber was overseeing a 13 percent workforce reduction that eliminated 200 mostly vacant jobs. The district had seen operating profits plummet tens of millions of dollars last year from recent years.</blockquote> So Ms Farber got a large salary plus bonus at a time when hospital "profits" were declining and many employees, including health care professionals with direct patient care responsibilities were being laid off.  A Long History of Outsize Compensation Note that this small public hospital system actually has a long history of paying its CEO a lot. In 2003, the (Fremont-Newark, CA) Argus <a href="http://nl.newsbank.com/nl-search/we/Archives?p_product=CFAB&p_theme=cfab&p_action=search&p_maxdocs=200&p_topdoc=1&p_text_direct-0=0FC40B8E714414E9&p_field_direct-0=document_id&p_perpage=10&p_sort=YMD_date:D&s_trackval=GooglePM">editorialized</a> (the full article requires payment), <blockquote class="tr_bq"> HOW MUCH is too much? We don't know the answer to that, but we're pretty sure $479,600 a year qualifies. That's how much Washington Hospital is paying CEO Nancy Farber. Farber will make a base salary of $406,000 during the 2003-04 fiscal year, a 10 percent raise from her 2002-03 salary of $368,000, plus she is getting a $73,000 bonus.</blockquote> That editorial did not seem to prevent Farber from getting raise after raise in the subsequent years. In 2011, the Los Angeles Times published an <a href="http://articles.latimes.com/2011/mar/29/local/la-me-0329-top-compensation-20110329">article</a> with the headline, "Hospital executives occupy top tier of California's public workers."  It said this about the pay given Nancy Farber, still the CEO of Washington Township Health Care District, <blockquote class="tr_bq">The hospital's chief executive, Nancy Farber, is the second-highest-paid official covered in Chiang's database [of pay to public officials] so far. She was paid about $874,000 in 2009.</blockquote> So Ms Farber's compensation has about doubled in the last 10 years, during which US cost of living has increased about 24% (look <a href="http://inflationdata.com/inflation/Consumer_Price_Index/HistoricalCPI.aspx?reloaded=true">here)</a>.  And at least one local editorialist thought she was paid too much in 2003. Justifying Large Payments with the Usual Talking Points So why should the pay of the CEO of a relatively small public hospital system keep rising so fast, despite criticism.  To some extent in 2011, and quite clearly in 2013, her supporters trotted out the usual suspect arguments. We previously have described (most recently <a href="http://hcrenewal.blogspot.com/2013/02/carolinas-healthcare-system-pays.html">here</a>) how whenever anyone bothers to try to justify extravagant executive compensation at hospitals, and for that matter, most other health care organizations throughout the US, they seem to repeat the same set of talking points.    We first listed the talking points <a href="http://hcrenewal.blogspot.com/2011/09/talking-points-sans-original-thought-to.html">here</a>, and then provided additional examples of their use <a href="http://hcrenewal.blogspot.com/2011/09/more-repeats-of-talking-points.html">here</a>, <a href="http://hcrenewal.blogspot.com/2012/03/example-of-how-complex-takes-control.html">here</a> and <a href="http://hcrenewal.blogspot.com/2012/12/health-care-hired-managers-not-playing.html">here</a>.   The talking points are: -  we pay what everyone else pays -  CEOs work hard and are brilliant, and so deserve high pay -  high pay is needed to attract and retain competent, if not brilliant people. In 2011, <a href="http://articles.latimes.com/2011/mar/29/local/la-me-0329-top-compensation-20110329">per the Los Angeles Times</a>, "officials" of the health district combined all three in a single sentence, : <blockquote class="tr_bq">Officials at the Washington Township Health Care District in Fremont, Calif., also argued that they needed to pay 'market rate' to obtain top-quality staff.</blockquote> In 2013,  the Argus - Mercury News <a href="http://www.mercurynews.com/breaking-news/ci_22593751/fremont-hospital-ceo-gets-six-figure-bonus-after">described</a> how Ms Farber's defenders used them all at length.  CEOs Work Hard and are Brilliant <blockquote class="tr_bq">Board member Bernard Stewart, a local dentist who has served for more than a decade on Washington's board, said the salary comparison with other public employees was unfair. 'It's a temptation for all of us to compare the CEOs salary with other elected officials or other public officials, but I can't stress in the strongest means possible, that is an absolute error,' Stewart said. 'We in this hospital are a public hospital. We are a publicly elected board, but we are engaged in an incredibly competitive and difficult business and we are different from any other public organization in that regard.'</blockquote> So one board member explicitly argued that being the CEO of a small public hospital system is much harder than any other kind of state government leadership position. Since the article also included a comparison of Ms Farber's pay with that of the Governor of California, <blockquote class="tr_bq">By comparison, Gov. Jerry Brown will make just over $165,000 this year.</blockquote> the board member implied that it is much harder to run a small public hospital district than the whole state.  That is breathtaking. The board also more generally praised the CEO,  <blockquote class="tr_bq"> Ahead of the vote for the bonus Wednesday, all five board members praised Farber's leadership and said that, because of the difficulties facing the hospital, experienced leadership was needed.</blockquote> In addition, note that hospital district board members suggested specific aspects of Ms Farber's performance worthy of high remuneration. <blockquote class="tr_bq">Board members credited Farber with implementing a new electronic records system, the construction of the district's new center for joint replacement on time and on budget, and for various accolades the district received last year. Among them, the district was ranked the fourth best hospital in the Bay Area by U.S. News & World Report and among the top 10 in the state for joint replacements by HealthGrades, a designation received for the last seven years. Board members said Farber's decision to reduce the workforce was evidence of her exemplary leadership. 'Making the decision to downsize, or right-size, when necessary, is as much a part of being a responsible administrator as is building, growing and improving the health care system,' Nicholson said. Board member Michael Wallace said Farber, 'has made tough and unpopular choices. The easy thing would have been to kick the can down the road, which is what we see happening all the time in Washington, but she didn't do that,'....</blockquote> So we see here that the CEO is given personal credit for all good things, even good things that obviously required considerable work by other people.  I am certain that the CEO did not personally implement the EHR, did not construct the joint replacement center, and did not directly care for patients.   All the other employees who contributed to these apparent successes implicitly got no credit, and it is likely that some employees who actually contributed were laid off. Furthermore, note that the board somehow believed that laying off employees in a time of financial stress, a hardly original business strategy in this day and age, and one presumably only undertaken due to a crisis, was somehow a sign of brilliant leadership.  Again, this is breathtaking.   I would argue that asserting the CEO has a harder job than the state governor, giving the CEO credit for numerous activities that obviously required the work of many others, while denying her responsibility for financial distress amount to a prolonged logical fallacy, a prolonged <a href="http://www.nizkor.org/features/fallacies/appeal-to-authority.html">appeal to authority</a>.  The argument that whatever the CEO does MUST be brilliant, and its assessment should not be the subject of critical thought. We Pay What Everyone Else Pays High Pay is Needed for Recruitment and Retention Admittedly, Ms Farber's defenders did not belabor these points as much, but, board member Michael Wallace said <blockquote class="tr_bq">'I don't want our leadership and management team wooed away by those monolithic systems willing to pay market compensation, which is a risk if we are not willing to do so.'</blockquote>  He provided no evidence that this supposedly brilliant group of hired managers was in any danger of being recruited elsewhere.  As we have <a href="http://hcrenewal.blogspot.com/2013/02/non-profit-hospital-executive-salaries.html">noted before,</a> the evidence suggests that most top executives are recruited from within the organization, and hence this assertion is at best another kind of logical fallacy, an appeal to common practice.   The Myth of the Divine Right of CEOs We have seen again and again how top executives of health care organization, particularly CEOs, are given credit for everything good that happens, while avoiding responsibility for everything bad, and have the ability to continually enrich themselves regardless of the evidence about their personal performance, or about the context in which they work.   Thus they are treated by those around them as some sort of aristocracy,  just short of omnipotent, minor deities.  In fact, as we wrote <a href="http://hcrenewal.blogspot.com/2012/03/golden-calf-explains-how-economism-lead.html">here</a>, there is reason to think that some trends in economic thinking, combined, as we wrote <a href="http://hcrenewal.blogspot.com/2012/03/why-health-care-leaders-remain.html">here</a>, with some trends in religious, or pseudo-religious thinking, have combined to promote something akin to the "divine right" of CEOs. Yet CEOs and other health care executives are demonstrably human, and hence flawed.  Furthermore, shielding them from all accountability is a tremendous perverse incentive that is likely to lead to ever more incompetent, self-interested, mission-hostile, and even corrupt leadership.   Somehow we need to start combating the talking points used to justify the lack of accountability and self-interest of top health care organizational leadership, and ultimately the whole notion of hired managers and executives as super human.  As a society we need to wake up from our dazed acquiescence to ideas that border on crazy.  We need to challenge rote justifications and talking points for that which makes no sense, but serve to make the powerful more powerful.

It is Harder to Run a Small Public Hospital System than California? - Deep Seated Myths and Logical Fallacies Underpinning Health Care Executive Compensation

Hospital executive compensation, the gift that keeps on giving... A Public Hospital CEO's Current Compensation A recent, somewhat obscure news article shows how deeply rooted is the current practice …

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20 Feb 2013

Carolinas Healthcare System Pays Executives Even More

In May, 2012, we <a href="http://hcrenewal.blogspot.com/2012/05/from-serving-poor-to-pay-executives.html">discussed</a> the contrast between the outsize compensation given to top executives of Carolinas Healthcare System, a large tax-exempt public hospital authority, and the apparent failure of the system to fulfill it promise to provide community care.  Now we can update that story. 2012 Executive Compensation The Charlotte Observer <a href="http://www.charlotteobserver.com/2013/02/06/3835851/charlotte-hospital-pay.html">reported </a>on the compensation given to top executives at the Carolinas Health Care System in 2012: <blockquote class="tr_bq">The top executive at Carolinas HealthCare System received $4.76 million in 2012 compensation, a 12 percent increase over 2011, as the system celebrated a profitable year and met all of its systemwide performance goals, the system announced. CEO Michael Tarwater, 59, who has led the $7.5 billion nonprofit system for more than 10 years, received a salary of $1.1 million, two bonuses totaling $2.8 million, and other compensation, including retirement and health benefits, of $795,724. The top 10 executives at Carolinas HealthCare each received more than $1 million in total compensation. Most received increases of more than 8 percent.</blockquote> A more detailed list, which included the rate of increase since 2011:: <blockquote class="tr_bq">Michael Tarwater, CEO: $4,760,026 – 12.36 percent increase Joseph Piemont, president and chief operating officer: $2,880,926 – 13.57 percent increase Greg Gombar, chief financial officer: $1,898,027 – 8.35 percent increase Laurence Hinsdale, executive vice president: $1,844,413 – 8.92 percent increase Paul Franz, executive vice president: $1,704,671 – 8.17 percent increase Dennis Phillips, executive vice president: $1,420,521 – 5.14 percent increase Dr. Roger Ray, chief medical officer: $1,315,148 – 21.76 percent increase John Knox, chief administrative officer: $1,296,185 – 8.24 percent increase Debra Plousha Moore, executive vice president: $1.145,357 – increase not available Russell Guerin, executive vice president: $1,141,171 million – 7.56 percent increase </blockquote><div style="color: black; font: 10pt sans-serif; height: 1px; overflow: hidden; text-align: left; text-transform: none; width: 1px;"> Read more here: http://www.charlotteobserver.com/2013/02/06/3835851/charlotte-hospital-pay.html#storylink=cpy</div><div style="color: black; font: 10pt sans-serif; height: 1px; overflow: hidden; text-align: left; text-transform: none; width: 1px;"> Read more here: http://www.charlotteobserver.com/2013/02/06/3835851/charlotte-hospital-pay.html#storylink=cpy</div> Also here were the compensation figures for some leaders of individual hospitals within the system: <blockquote class="tr_bq">Others in Carolinas HealthCare System - 2012 • Spencer Lilly, president, Carolinas Medical Center: $633,326 • Robert Larrison, president, Carolinas Rehabilitation: $348,976 • Douglas Roush, president, CMC-Mercy: $262,745 • Christopher Hummer, president, CMC-Pineville: $549,616 • William Leonard, president, CMC-University: $378,369 • Phyllis Wingate-Jones, president, CMC-NorthEast: $761,160 • Peter Acker, president, CMC-Lincoln: $385,847 • Michael Lutes, president, CMC-Union: $488,427 </blockquote><div style="color: black; font: 10pt sans-serif; height: 1px; overflow: hidden; text-align: left; text-transform: none; width: 1px;"> Read more here: http://www.charlotteobserver.com/2013/02/06/3835851/charlotte-hospital-pay.html#storylink=cpy</div> The Context The context is that Carolinas Healthcare is a large tax-exempt public hospital system that claims that it "works to improve and enhance the overall health and wellbeing of its communities" according to <a href="http://www.carolinashealthcare.org/about-chs">its web-site</a>.  However, there have been accusations, for example here by "Jessica Curtis, director of the Hospital Accountability Project for Community Catalyst in Boston," that is has been <blockquote class="tr_bq">'...sending very low income patients to collections and suing them as well.' The Observer and The News & Observer reported last year that during the five years ending in 2010, North Carolina hospitals filed more than 40,000 lawsuits. Most of the suits were filed by Carolinas HealthCare.</blockquote> Note that we discussed the contrast between this hospital system's public nature and aspirational statements about serving the community on one had, and its oversize executive compensation on the other hand <a href="http://hcrenewal.blogspot.com/2012/05/from-serving-poor-to-pay-executives.html">here</a>.  Since then, executive compensation has only gone up. The Usual Talking Points for Justification Of course, when asked, defenders of the hospital system gave the stock justifications.  For example, <blockquote class="tr_bq">Carolinas HealthCare officials said executive compensation is 'performance based' and reflects the system’s growth. </blockquote> The Observer found a health care executive compensation consultant to make the usual arguments about the need to pay market rates to prevent supposedly talented executives from being recruited elsewhere: <blockquote class="tr_bq"> Consultants who assist hospitals in setting executive compensation say they compare peers at hospital systems of comparable size, complexity and performance. 'If , he’s going to get paid higher in the range. That individual is very vulnerable to being recruited away' said Bob Erra, president of Integrated Healthcare Strategies. 'The last thing a compensation committee wants to do is to lose a leader over pay,' said Erra, whose Minneapolis-based firm works with Novant Health but not Carolinas HealthCare.</blockquote>  Just as we mentioned in our <a href="http://hcrenewal.blogspot.com/2013/02/non-profit-hospital-executive-salaries.html">most recent post</a>, whenever anyone bothers to try to justify extravagant executive compensation at hospitals, and for that matter, most other health care organizations throughout the US, they seem to repeat the same set of talking points.    We first listed the talking points <a href="http://hcrenewal.blogspot.com/2011/09/talking-points-sans-original-thought-to.html">here</a>, and then provided additional examples of their use <a href="http://hcrenewal.blogspot.com/2011/09/more-repeats-of-talking-points.html">here</a>, <a href="http://hcrenewal.blogspot.com/2012/03/example-of-how-complex-takes-control.html">here</a> and <a href="http://hcrenewal.blogspot.com/2012/12/health-care-hired-managers-not-playing.html">here</a>.   The talking points are: -  we pay what everyone else pays -  CEOs work hard and are brilliant, and so deserve high pay -  high pay is needed to attract and retain competent, if not brilliant people. Note that without specific evidence to back them up, the first two talking points at least are logical fallacies.  The first is an <a href="http://www.nizkor.org/features/fallacies/appeal-to-common-practice.html">appeal to common practice</a>.  The second is an <a href="http://www.nizkor.org/features/fallacies/appeal-to-authority.html">appeal to authority</a>. None of the examples of these talking points we have seen so far explain why these apply to CEOs and other top hired managers, but not to other kinds of employees. So it should be no surprise that the justifications for the largess to hospital executives at Carolinas follow the talking points yet again. -  We Pay What Everyone Else Pays => "they compare peers at hospital systems of comparable size, complexity and performance."  Note further that it is hard to believe the comparisons were only to other public hospital systems, that is, hospital systems run by local government - CEOs Work Hard and Are Brilliant => "(the CEO) is a high performer...."  Note further that as usual no evidence of the CEO's specific performance was offered. - High Pay Needed for Retention => "That individual is very vulnerable to being recruited away."  Note that as we wrote recently, most CEOs are recruited from within the organization, and no specific evidence that this specific CEO was particularly likely to be recruited away was offered.  So as is usual, underlying these talking points there was no evidence, nor arguments that would make them more logical. Summary: the More Things Change The more they stay the same.  Thus this seems to be yet another example of how top managers almost always now seem able to personally profit from their positions of trust.  In this particular example, however, these were managers of a public organization, so it may be possible that public pressure could make them more accountable and hold them to more reasonable pay.   So to repeat my conclusions from 2012....  The governance of this organization, like that of many others we have discussed, needs to regain accountability, transparency, integrity, and ethics. It must insist that the leaders it hires uphold the mission ahead of other concerns, particularly personal enrichment. It must provide these leaders with realistic incentives based on how well they uphold this mission, not on revenue or operating margin. Until such changes are accomplished, expect this hospital system, like many other health care organizations, to contribute only to our ever rising prices, declining access, and stagnating health care quality.

Carolinas Healthcare System Pays Executives Even More

In May, 2012, we discussed the contrast between the outsize compensation given to top executives of Carolinas Healthcare System, a large tax-exempt public hospital authority, and the apparent failure …

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14 Feb 2013

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