Big Raises for Those Who Lead Area’s LargeHospital Groups
By Jeff Swiatek, Indystar.com, March 20, 2012

CEO pay is up, sharply in some cases, at Indianapolis' four large hospital groups, as the systems have grown and dumped more responsibilities on their top leaders.

Total pay for those CEOs rose anywhere from 15 percent to 53 percent from 2008 to 2010. While experts say the pay is in line with executive compensation at other large hospital groups, the rate of the increases far outpaces the minimal wage gains that area health-care workers (1.7 percent) and hourly workers (3.1 percent) have seen over the same time.

The rising CEO pay comes at one of the shakiest financial periods ever for hospitals, as they struggle with cuts in reimbursements for care from federal Medicare and Medicaid programs and private insurers.

But to the boards that run the area's big four hospital groups, the higher CEO pay is money well spent. Expansion of their health-care systems, the boards say, has added complexity to their CEOs' jobs and justifies ever-bigger paychecks.

At the top of the best-paid list: IU Health's President and Chief Executive Daniel F. Evans Jr., who pulled down $2.08 million in compensation in 2010, up 17 percent from 2008. Subtracting Evans' retirement payouts, which vary year to year, his base pay jumped 19 percent since 2008.

Close behind comes Vincent Caponi, CEO of St. Vincent Hospital and Health Care Center, who took in $1.86 million in 2009-10, a two-year jump of 44 percent, or 64 percent when retirement is removed.

The two smaller hospital groups pay their chief executives less, though it's also on the rise. Robert Brody of Franciscan Alliance earned $1.27 million in 2010 (53 percent more than in 2008), while Bryan A. Mills, the relatively new CEO of Community Health Network, received $1.35 million, or 15 percent more than his predecessor, William Corley, collected in 2008. (Corley retired in 2009.)

Indianapolis' publicly owned county hospital network, Wishard Health Services, pays much less to its chief executive. Dr. Lisa E. Harris made $323,977 in 2011, a 10 percent increase from 2009.

The seven-figure compensation packages that top U.S. hospital administrators enjoy are cited by critics as examples of sorry extravagance at a time when hospitals face a tighter revenue picture. Unlike private corporations, almost all large hospitals are not-for-profits that have community service mandates and don't exist to generate profits for shareholders or competitive rewards for their executives.

"I have seen lots and lots of cases of rising (hospital CEO) compensation . . . and it seems to rise faster than revenue. Executive compensation doesn't seem to correspond to general financial performance . . . or what a hospital's mission is," said Dr. Roy M. Poses, a professor at BrownUniversity. He heads the Foundation for Integrity & Responsibility in Medicine and is a critic of hospitals for overpaying their CEOs.

Significant growth

Indianapolis' four large hospital groups all have seen rising revenue from 2008 to 2010, the last year for which financial data about hospitals is publicly available through their federally required financial filings.

Revenue over the two years rose 28 percent at St. Vincent, 17 percent at Franciscan Alliance, 10 percent at IU Health and 4 percent at Community.

That growth has helped drive the higher CEO pay -- in addition to the widening responsibilities given to some CEOs, the hospitals say.

At IU Health, formerly Clarian Health Partners, where Evans has been CEO since 2002, "The system's grown significantly. It makes us think twice about the difficulty of running such a system. We literally cover the entire state of Indiana. And much of that has been under Dan's oversight," said Charles Golden, an IU Health board member and chair of its compensation committee.

From 2008 to 2010, IU Health has seen revenue grow 10 percent to $2.46 billion, net income climb to $229 million from $72 million (driven mostly from interest income from its endowment), while its workforce has topped 15,000 people.

Golden says Evans "has done a really superb job. Almost everything favorable to our system has been positive in his time."

Evans, like the three other chief executives of the large Indianapolis hospital groups, declined to talk about his pay, deferring to other hospital officials for comment.

St. Vincent has similarly written bigger paychecks to its CEO, Caponi, as he's expanded his responsibilities beyond Central Indiana to include oversight of five hospitals in Evansville and Wisconsin for parent company Ascension Health.

Caponi "is on an airplane and out of town a good bit, running a much bigger area" for Ascension, said Bill Estes, chairman of St. Vincent's board. "That's the way we justify (higher CEO pay) and feel comfortable with that." The St. Vincent system has about 20 hospitals and 7,500 employees.

Caponi was given a $616,911 bonus in 2010, by far the largest bonus given to any of the four hospital CEOs from 2008-10.

At Franciscan Alliance (formerly St. Francis), Brody also has taken on a larger role as one of four regional CEOs in the Franciscan system and has seen his pay rise to reflect his broader duties, said Joel Hoff, senior vice president of administrative services.

But unlike St. Vincent and others, Franciscan Alliance hasn't handed bonuses to its CEOs, which has kept Brody's compensation from reaching the levels of some of his counterparts. "The sisters (in charge of the Catholic-run system) never wanted to do that level of incentives," Hoff said.

At Community Health, which promoted Mills in 2010 to replace long-time CEO Corley after he retired, CEO bonuses haven't been paid for the past several years -- but not because of philosophical objections.

"Over the past several years, Community has not paid bonuses (because) we have not met certain criteria . . . for incentives to be paid," said Jill Parris, chief human resources officer. Criteria include cost and operating margins, quality ratings and patient satisfaction scores, she said.

Mills actually saw his compensation drop about $100,000 when he took over as CEO because he moved from a job in a for-profit part of Community's system where pay is higher than on the not-for-profit side, Parris said.

Higher pay for other execs

Evans' 2010 compensation stands as the highest for an Indianapolis hospital CEO in recent years, but two fellow executives were paid more in 2009.

That year, IU Health gave $3.2 million to its senior vice president and general counsel, Norman Tabler Jr., and $2.9 million to its senior vice president and chief executive of Clarian Health Plans, Alex Slabosky.

The big payouts to Tabler and Slabosky were inflated by lump-sum retirement benefit payments the two earned for many years of work, Golden said.

Evans himself has collected large retirement and other deferred benefits in each of the past three years. In 2010, they made up nearly 40 percent of his compensation.

Jim Otto, senior principal in Atlanta for the Hay Group, a consultant on executive benefits, said pay to top hospital CEOs in Indianapolis appears in line with rising compensation, including retirement benefits and bonuses, being paid nationally to most large-system hospital executives.

Large hospital groups make certain they pay similar to their peers to remain competitive

One reason for rising pay, Otto says: "These aren't easy jobs. They are not easy to fill. The candidate pool isn't terribly large."

Poses, the critic of hospital CEO pay, said he'd like to see it shrink. His suggestion: Put more noncorporate members on hospital boards because they'd be less inclined to endorse large compensation packages that are more typical of for-profit companies.

"Boards are populated by wealthy executives, who themselves are getting increasing compensation, rather than by community representatives or patient representatives," Poses said.

Another critic, Dr. Howard Brody, a bioethicist at the University of Texas-Galveston, said he thinks it's unhealthy for nonprofit hospitals to base CEO pay on industry averages, as is common at stock corporations.

"Whenever the nonprofit sector starts acting more like the for-profit sector, I start to get worried," said Dr. Howard Brody, director of the Institute for the Medical Humanities. "It just becomes crony capitalism. If one executive gets paid $3 million instead of $1 million, then every executive wants $3 million. It just becomes a vicious cycle of inflation of CEO benefits."

Whether hospitals will keep up the handsome payouts to their CEOs is a good question, given the coming of radical new health-care reforms that were pushed by President Barack Obama and passed by Congress. The reforms are widely expected to reduce hospital revenue as government and quasi-government entities get new powers to limit what hospitals and doctors can charge for care.

Hoff, of Franciscan Alliance, said some analysts predict 20 percent cuts in federal and private insurance reimbursements to hospitals as new regulations take hold. If that happens, "I can't imagine we will be able to have the same (pay) increases" for executives, he said.

Golden, of IU Health, thinks CEOs will continue to command high pay, because their skills will be required all the more under changing health-care laws.

"Unless you want to default to mediocrity, I suppose you can do that (cut CEO pay)," he said. "But I don't think that's where we are going. I don't think these (hospital) systems will get any easier to manage."

Additional Facts

Hospital executive pay

Here's a quick look at total compensation for top executives at the city's four largest hospital groups in 2010, the most recent year for which the data are available.
» $2,080,779: Dan Evans Jr., CEO and president, Indiana University Health
» $1,864,592: Vincent Caponi, CEO, St. VincentHospital and HealthCareCenter
» $1,353,974: Bryan A. Mills, President and CEO, Community Health Network
» $1,269,970: Robert Brody, Regional CEO, Franciscan St. Francis Health

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