Charlotte Observer, January 14, 2009 - For first time in nearly a decade, Carolinas HealthCare System reveals executives' pay.
 For the first time in nine years, Carolinas HealthCare System has made
public how much it pays top executives in salaries and bonuses.
Chief Executive Officer Michael Tarwater, 55, who has led the $4
billion public hospital system since 2004, received total compensation
of $3.5 million in 2008. That includes base salary of $940,000, bonuses
of $2 million, and other compensation, including retirement and health
benefits, of $543,000.
That compares to total 2008 compensation of $2 million for Paul Wiles,
61, CEO of Novant Health, a $2.8 billion private company that owns
Presbyterian Healthcare, the competing hospital system in Charlotte.
Wiles, based in Winston-Salem, received a salary of $900,000, a bonus
of $829,000, and other income, including retirement and health
benefits, of about $304,000.
No single agency tracks hospital executive pay nationwide. But
compensation for both executives appears to fall in line with executive
pay at hospital systems of similar size, according to two consulting
firms.
Both executives also report they are freezing base salary for top management in 2009.
A survey of 28 private hospital systems with a median of $2.3 billion
in revenues showed the median salary for chief executives is $900,000,
according to Integrated Healthcare Services, a Minnesota-based firm
that assists Novant on compensation. The median total cash compensation
(excluding retirement and health benefits) is $1.5 million.
Watson Wyatt Worldwide, a human resources consulting firm, reviews five
surveys of hospital systems of comparable size and complexity to assist
in setting pay at Carolinas HealthCare. Of systems with about $3.4
billion in net patient revenues, the median salary was $934,000 and the
median total cash compensation (excluding retirement and health
benefits) was $1.5 million.
James Hynes, chairman of the Carolinas HealthCare board, said the
compensation for Tarwater and nine other executives was appropriate
because the hospital system has grown and remained financially strong
in difficult economic times without cutting services to patients.
“As things get tougher and tougher, that gets harder to do,” Hynes told
Observer staff Tuesday. “We're going to have more uninsured patients.
We've got to figure out what we do to sustain ourselves… We've got a
great management team that will do as well as anybody in the country…
We are all confident that we will weather these difficult times.”
Hynes said 2007 was “one of our most successful years,” including the
merger with NorthEast Medical Center in Concord, which increased the
system's size by 20 percent and opened up an important new market.
Tarwater's individual performance bonus of $1 million was the maximum
he could have received and was based in part on his 2007 goals. The
other $1 million bonus was based on the system's financial performance
from 2005-07.
“We wanted to signal to Michael, ‘Job well done.'”
Health care management is an extremely competitive field, he noted. If
Tarwater and other executives didn't receive competitive salaries and
benefits, Hynes added: “They'd go work someplace else.”
Carolinas HealthCare is the third-largest public hospital system in the
country. It owns, leases or manages more than 20 hospitals in the
Carolinas, including Carolinas Medical Center, with 874 beds, a Level I
trauma center and multiple transplant programs.
Jim Nelson, of Integrated Healthcare, said he does not work with
Carolinas HealthCare but knows its reputation. “They're known
throughout the country as one of the most sophisticated, well-run
systems in our country.”
New law requires disclosure
Tuesday's disclosure from Carolinas HealthCare came in response to a
change in N.C. law that requires public hospitals to report total
compensation of 10 highest paid executives, starting with fiscal year
2008.
The legislation followed a legal fight between the Observer and
Carolinas HealthCare over the newspaper's request for the final
compensation package of Harry Nurkin, Tarwater's predecessor, who left
in 2004. The Observer lost the court battle, but in 2007, the
legislature expanded the law on disclosure of public hospital
executives' compensation.
Sen. David Hoyle, D-Gastonia, who sponsored the legislation, said
“total compensation ought to be made available” from public hospitals.
Similar information is publicly available from private not-for-profit
hospitals, such as Novant, through Form 990 reports to the Internal
Revenue Service. Compensation figures are also available from publicly
traded companies through reports to the Securities and Exchange
Commission.
“There was concern that some hospitals had to report and some didn't,”
Hoyle said, “and I think this leveled the playing field so they all
have to report the same way.”
Salary vs. compensation
Compensation for top executives at Carolinas HealthCare first became
publicly available in 1990, when the Observer asked for the information.
But in 2000, the hospital began releasing salaries only, without
bonuses and other compensation, on the advice of system lawyers.
At the time, N.C. law said public hospitals must make “salary”
information public. Observer lawyers argued the term should be
interpreted broadly, but the appellate courts upheld the CHS argument
that revealing more than base salary would violate state law.
In 2007, legislators amended the law to require public hospitals to
report total compensation, not just salary, of the 10 highest paid
executives.
In a compromise, the law permitted public hospitals to keep private the
compensation of other employees, such as nurses, because of competitive
pressures.
Because of the gap in disclosure, it's impossible to calculate how much
Tarwater's compensation has increased every year since 2000. When he
became CEO in 2004, his base salary was $675,000. That's a 39 percent
increase in four years.
Tarwater said Tuesday he will consider whether to voluntarily release
his compensation for past years, but he emphasized the law does not
require that.
Carolinas HealthCare officials emphasized that the board's eight-member
compensation committee, which includes Hynes, reviews compensation for
executives at hospitals of similar size, in compliance with a process
outlined by the IRS for private, tax-exempt organizations. As a public
hospital system, Carolinas HealthCare is not required to follow IRS
standards, but chooses to, Hynes said.
Watson Wyatt consultants attend meetings of the compensation committee
and provide information about comparable institutions, both
not-for-profit and for-profit, Hynes said.
Tarwater and other executives do not attend meetings of the committee,
Hynes said. But Tarwater does recommend to the committee what his
subordinates should be paid.
 For 2009, Tarwater said he plans to recommend that Carolinas HealthCare
executives – about 600 employees – should not receive salary increases,
because of the declining economy.
Novant's board has already decided to freeze base salary for executives in 2009, said spokesman Jim Tobalski.
Decisions about whether to limit bonus pay have not yet been made by either system.
Salaries reflect growth
Like Carolinas HealthCare, Novant's board also has a committee that
sets compensation, Tobalski said. The board's philosophy is to set base
salary at or slightly below the national average, he said. Bonuses are
based on performance.
Integrated Healthcare's survey showed that, for executives of hospital
systems with a median of $2.3 billion in revenues, median salary
increases are 5 percent. But Nelson said raises in 2009 will run from
zero to 4 percent. “Salary increases are coming down in response to
changing economic conditions.”
At Novant, Wiles' salary increased by 11 percent from 2007 to 2008, more than double the median cited by Integrated Healthcare.
Tobalski said that reflected growth of the Novant system and longtime
tenure of employees. For example, Wiles has been a hospital
administrator with Novant and its predecessor for 35 years. Novant's
revenues more than doubled from $1.2 billion in 2002 to $2.8 billion in
2008. Also, Novant Medical Group, with 361 doctors' offices across the
Carolinas in 2002, has almost tripled in size in five years to 1,060
today.
Carolinas HealthCare officials also cited system growth as justification for executive pay.
Hynes noted that the two-state network of hospitals and doctors'
offices is a much different organization than it was 30 years ago, when
Charlotte Memorial, now called Carolinas Medical Center, was struggling
under the burden of caring for the uninsured.
“At one time the poor people came to Charlotte Memorial, and the wealthy people went to Presbyterian,” Hynes said.
The board decided to operate the hospital more like a business, by
recruiting experienced executives and pursuing “patients who can pay as
well as patients who cannot pay.”
The tension since has been to make enough money to continue meeting the
mission of caring for the poor. “You've got to have the margin to have
the mission,” Hynes said. “We never want our executives to think they
should close clinics.
“I'm absolutely comfortable that we're getting our money's worth out of this management team.”
Karen Garloch: 704-358-5078
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Source: http://www.charlotteobserver.com/597/story/470957.html
Charlotte Observer
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