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'AG: CEO pay, care quality should relate'

Last modified: 7/3/2012 12:00:00 AM
New Hampshire's 23 nonprofit hospitals should be more transparent about how much they pay their chief executive officers, and CEO compensation should more closely track performance metrics like charity care, Attorney General Michael Delaney said yesterday.

He spoke to reporters following the release of "Executive Compensation at New Hampshire's Non-Profit Hospitals," a report prepared by the New Hampshire Center for Public Policy Studies. The report found CEO pay generally tracks a hospital's size, with little or no correlation to measures of charity care, cost and quality of care.

"I think, at the end of the day, if we have significant salaries - no question that these are high salaries - if we have significant salaries that are being paid to CEOs of nonprofits, and we have a report that concludes that there's no clear link between the use of those charitable assets and performance of the charitable mission, I think that's something as a state we need to recognize and we need to try to improve on," Delaney said.

Delaney, who regulates charitable organizations including tax-exempt hospitals, said he commissioned the report in 2010 after publicly criticizing big pay increases for the then-CEO of Catholic Medical Center in Manchester. But he said the study, paid for with a $23,600 grant from his office, is meant to guide regulators and hospitals on executive compensation, and was "not any kind of hunt."

The report found wide variation in how much the state's nonprofit hospitals pay their CEOs, with the heads of large hospitals in the southern end of the state making much more than CEOs of smaller hospitals in the northern and western parts of New Hampshire.

In 2009, the most recent year in the report, total CEO compensation ranged from about $150,000 at Upper Connecticut Valley Hospital in Colebrook to nearly $1.1 million at Catholic Medical Center. Concord Hospital's president and CEO, Michael Green, ranked second in the state, with nearly $845,000 in total compensation.

Pay for New Hampshire hospital CEOs rose 18.2 percent between 2006 and 2009, the center said, slower than the New England average of 29 percent but outpacing the average rise of 9.4 percent for CEOs in northern New England (Maine, New Hampshire and Vermont). Average pay for a New Hampshire CEO was $489,000 in 2009, less than the New England average of $755,000 but higher than the northern New England average of $435,000.

The center concluded that "New Hampshire CEO compensation levels, on average, are roughly in line with those in other New England states."

 Pay and process

Still, the center found it was often tricky to determine exactly how much hospital CEOs were being paid.

Base salary isn't the final word - 15 hospitals awarded bonuses to their CEOs in 2009 and 18 hospitals provide some form of vehicle reimbursement, among other payments, according to the report.

For example, Concord Hospital's Green made about $514,000 as a base salary in 2009, a 1.3 percent increase from 2008. But his total compensation rose 3 percent, to nearly $845,000, thanks to a $150,000 bonus and other perks.

In a two-page statement yesterday, Concord Hospital defended Green's pay as appropriate.

"We believe serving as CEO of Concord Hospital is one of the most demanding and complex jobs in the region," said Dr. Thomas Akey, chairman of the hospital's board. "Michael Green is responsible for ensuring our community's health."

Delaney said the report "may result in recommendations for the General Court on ways that we can enhance the transparency in reporting on hospital CEO compensation."

In addition, federal law requires nonprofit charities to pay only "reasonable" compensation to executives. The center's report concluded most hospitals followed so-called "rebuttal presumption" guidelines for approving pay, including consulting data on CEO compensation at other hospitals and keeping minutes of related meetings.

But the center concluded that a handful of hospitals didn't follow all recommended procedures on approving pay.

"Not meeting those requirements doesn't necessarily mean you're facing a penalty," said Daniel Barrick, the center's deputy director and a former Monitor reporter who authored the report. But those gaps could lead to an Internal Revenue Service inquiry, he said.

"In a handful of instances, there was a gap in the records that seemed to indicate those hospitals were not meeting the IRS's standards," Barrick said.

Delaney and Senior Assistant Attorney General Anthony Blenkinsop, director of the office's Charitable Trusts Unit, said they would work with those hospitals to help bring them into compliance.

 Quality and charity

Steve Ahnen, president of the New Hampshire Hospital Association, said the report shows the state's nonprofit hospitals comply with the law and provide reasonable pay to CEOs.

"I think the report will provide an important benchmark for how we look at compensation at the future," Ahnen said. "But I think, importantly, the report shows that hospitals in New Hampshire are meeting the 'rebuttal presumption' standards, the federal government's standards, for setting compensation. And most importantly, what it shows is that compensation levels are consistent with their peers across New England. We think that's very, very important."

But Delaney said he was concerned with the rapid rise of CEO's pay, as well as the center's conclusion that pay tended to be higher at large hospitals and lower at small hospitals.

"It's not surprising," Barrick said. "As a hospital increases its size, it becomes a more sophisticated and complicated organization . . . and they require very skilled and capable executives."

His report concluded that three measures of hospital performance showed little or no correlation to CEO pay: quality of care, cost of care and the amount of charity care provided to the community.

Delaney and Blenkinsop said, since nonprofit hospitals are exempt from taxes on the condition that they provide a benefit to the community, those factors deserve consideration by hospital boards.

"We want to see these performance measures considered in setting compensation, and for boards to adopt best practices in establishing a compensation-setting-and-review process," Blenkinsop said. "The Charitable Trust Unit takes its responsibility over assets committed to a charitable purpose seriously. We also take seriously our role in ensuring that boards are meeting their fiduciary obligations."

Ahnen said hospital boards already consider a broad spectrum of performance and other measures in setting pay.

"There are a variety of factors on which hospital executives should be reviewed, and I think you would find that many hospital CEOs, their boards do look at the quality of care that they provide in their institution, is the quality improving over time. . . . We think those are important metrics and we think hospitals are looking at those," Ahnen said. "The challenge is, what's the benchmark, what's the number in terms of how you compare it?"

Blenkinsop said the attorney general's office welcomes a dialogue with hospitals on executive pay, as well as "a broader discussion with the nonprofit sector on this timely and important issue.

"If necessary," he continued, "we will utilize our common-law and statutory authority when and where appropriate, and we will also work with the General Court if changes to the law are necessary."

(Ben Leubsdorf can be reached at 369-3307 or bleubsdorf@cmonitor.com or on Twitter @BenLeubsdorf.)


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