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

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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

"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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