HOSPITALS: Overpaid facility managers?

A long while ago (1995?) I was with Ian Morrison trying to sell something to an exec Mt Sinai Hospital in New York. Wondering by the exec’s office was Jack Rowe, lately of Aetna, but then the CEO of Mt Sinai. Ian was due to talk to their board; Jack noticed him and said something similar to, "don’t use your line about hospital CEO’s being overpaid facilities managers". It was half joking full serious.

Recently close to my neck of the woods there’s been a little fuss about salaries at El Camino Hospital–a district hospital in Mountain View, CA in the heart of Silicon Valley. (A district hospital is a weird California beast–basically a typical non-profit with some relatively minor tax support from the locale).

Back in the 1990s like many hospitals, El Camino was bleeding money. But the ship got righted. Now it makes a pretty decent profit with around $21m in income on something over $300m revenue. Still there was a big spat about whether or not the hospital (which does after all get some tax payer support) should tell the world about how much its CEO gets. Eventually they were forced to reveal all

El Camino Hospital’s chief executive officer earned a base salary of $492,291 in 2004, according to IRS Form 990, released by the hospital last week. In addition, CEO Lee Domanico received a bonus of $173,306, $9,000 in expenses and allowances and $249,127 in deferred compensation and contributions to his benefit plan. In 2002, the hospital lent the CEO $850,000 at 6 percent simple interest on a 10-year loan. Annual interest forgiveness is treated as additional compensation. In 2004, $19,380 in interest was forgiven.The typical salary of a CEO of an independent hospital with more than $200 million in annual revenue was $426,000 in 2004, according to Sullivan, Cotter and Associates, which prepared the comparison sheet the hospital released with the Form 990. The independent El Camino Hospital’s revenue is more than $300 million a year, Friedenberg said.

But actually it was rather more than that for the CEO, the scurrilous local rag the Mt View Voice reported

Tax documents released this week show El Camino Hospital CEO Lee Domanico received more than $900,000 in total compensation in the fiscal year ending June 30, and five other members of the hospital’s management team earned more than $300,000 during the period.

Compared to that the new guy, who starts Aug 7 but is going to have to scrape by:

Graham’s base salary is $543,000, which ranks him near the top of
his Bay Area counterparts. Washington Hospital in Fremont, also a
community district facility, pays CEO Nancy Farber a $424,557 base
salary. Domanico’s base was $500,000. Domanico’s contract also offered him a bonus of up to 40 to 45
percent of his base salary; Graham’s incentive pay will be capped at 30
percent of his base.

Now I know that living in Silicon Valley is expensive, but even so half a million bucks a year for running a community hospital seems like a pretty decent salary. Yet apparently they’re happy to believe that it’s par for the course–and it more or less is. USA Today had a piece on hospital CEO salaries a while back, but it really focused on the bigger non-profit systems which all pay a million or two. But there are roughly 2000 hospitals bigger than 200 beds but smaller than the giants. And if El Camino paying its execs that amount isn’t so out of line with other large community hospitals as their compensation excuse maker says–well perhaps running a hospital is just much harder than we cynics suppose it is. At any rate there are therefore some 2,000-ish CEOs making a prett decent whack.

Who knows, maybe the surgeons make the CEO pick up the tab.

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3 replies »

  1. RE: “I guess this is just another way of saying that pay for performance, if it can be properly defined and adequately measured, is a good thing for compensating CEO’s (and for rewarding or penalizing doctors and hospitals).”
    Not at non-profits. EXCESS compensation is illegal. Wake up and get a dose of legal reality.
    And read the Wherethemoneygoes.com website, by the way. They keep uncovering scandal after scandal when something hits the news.

  2. I think it’s a mistake to compare a mid-sized non-profit entity like a district hospital to a global, for-profit corporation. And didn’t Jack Welch basically (legally) rip off GE shareholders with his access to the corporate jet, apartment in NYC, and other goodies that he negotiated for himself in his retirement?

  3. I remember a number of years before he retired listening to former GE CEO, Jack Welch, talk about leadership. One of the points he made was that having the right person in a key spot in the organization can make a big positive difference in how the organization performs.
    If the hospital CEO, through his or her leadership, can create a culture of excellence, efficiency, continuous quality improvement, learning from mistakes, hire good people, and weed out chronic underperformers then even a seven figure compensation package might be quite reasonable. If he is a mediocrity with a bureaucrat mentality, then the label of overpaid facilities manager might be too generous, even at low six figure comp.
    I guess this is just another way of saying that pay for performance, if it can be properly defined and adequately measured, is a good thing for compensating CEO’s (and for rewarding or penalizing doctors and hospitals).