U.S. Sen. Chuck Grassley of Iowa, Congress leading critic of nonprofit abuses, is raising questions about bonuses for executives of hospitals that benefit from a federal discount prescription drug program.
One of the hospitals in question is Carolinas HealthCare System, whose CEO, Michael Tarwater, was awarded total 2012 compensation of $4.7 million, including bonuses of more than $2 million.
Several hospitals within Carolinas HealthCare qualify for the discount 340B program, a federal plan intended to help the poor and uninsured. It requires drug manufacturers to cut prices to hospitals that treat large numbers of financially needy patients.
Grassley raised questions about the bonuses this week in response to a report by Kaiser Health News that compared CEO compensation at more than 30 U.S. hospital systems. Tarwaters compensation was fifth highest on the list.
Hospitals eligible for the 340B program are supposed to have a high indigent patient population, Grassley wrote in a memo. If some (of the) hospitals have significant money available for executive bonuses, that raises questions about how they allocate their resources.
Are they doing everything possible to help uninsured patients receive health care, including affordable prescription drugs?
Officials with Carolinas HealthCare, a public, nonprofit system that operates about 40 hospitals, said they pass savings on to many uninsured patients, including those who visit its four community clinics, which operate at an annual deficit of $9.8 million and where uninsured patients are charged no more than $10 for any prescription.
CEO compensation is in no way connected to the 340B program, the hospital said in a statement. Tarwaters pay is determined after reviewing national data on organizations of similar size, scope and complexity. Fulfillment of our mission depends upon our ability to recruit and retain talent capable of managing one of the nations most integrated and comprehensive healthcare systems.
Carolinas HealthCare officials said Tarwater joined the system 32 years ago.
Over the years, his vision, diversified experience and team building skills have made a huge difference in assembling one of the most capable groups of medical and executive professionals in the country, the statement said.
Hospital pay rises
After interviewing compensation consultants and reviewing CEO employment contracts and packages, Kaiser Health News reported that hospital boards are paying bosses extra for boosting volume rather than delivering quality. Carolinas HealthCare was the only North Carolina system included in the Kaiser review. At least two other systems larger than the $7 billion CHS paid their leaders less than Tarwater, according to Kaiser.
For example, Partners HealthCare, which includes Brigham and Womens Hospital and Massachusetts General Hospital in Boston, had operating revenue of $9 billion in 2012 and paid its CEO $3.1 million in compensation, including $138,000 in bonus and incentive pay. The Mayo Clinic in Rochester, Minn., had total revenue of $8.8 billion in 2012 and paid its CEO $2 million in compensation, with no bonus pay.
Tarwater, Carolinas HealthCare CEO for more than 10 years, got a 12 percent increase in compensation in 2012. His salary was $1.1 million, with two bonuses totaling $2.8 million, and other compensation, including retirement and health benefits, of $795,724.
Grassleys inquiry has been focused on the hospitals use of the drug discount program. He requested information last year from Carolinas HealthCare and two other nonprofit hospitals in North Carolina Duke University Hospital and UNC Hospitals.
His inquiry came in response to an investigation by the Observer and The News & Observer of Raleigh which found that large nonprofit hospitals are dramatically inflating prices on chemotherapy drugs up to 10 times over cost at a time when they are cornering more of the market on cancer care.
Grassley concluded that the North Carolina hospitals have made millions from the 340B program. And he said his findings raise questions about whether the program is functioning as intended.
Questions about nonprofits
Hundreds of U.S. hospitals, including more than 40 in North Carolina, obtain discounts on outpatient drugs under the rapidly growing 340B program. Earlier this year, Carolinas HealthCare told Grassley it received $40 million in revenue from the 340B program in 2012. The system said it was able to save about $21 million through its participation in 2011 up from about $13 million in 2008.
About 42 percent of 340B patients at Carolinas Medical Center the largest hospital in Carolinas HealthCare were covered by commercial insurance in 2011, and about 11 percent were uninsured. The rest were covered by Medicare and Medicaid.
Nonprofit hospitals are exempt from property, sales and income taxes. In exchange, federal officials expect them to provide a benefit to their communities, in part by providing care to those who cant afford it.
In recent years, Grassley has questioned whether hospitals and other nonprofits earn their tax-free status, and he has proposed, unsuccessfully, that Congress establish a minimum of charity care that nonprofit hospitals provide. Carolinas Medical Center spends more than 5 percent of its budget on charity care a larger percentage than most North Carolina hospitals. In 2012, Carolinas HealthCare provided more than $1.25 billion in community benefit. But Carolinas HealthCare also has filed thousands of lawsuits against patients who dont pay their bills, and the newspapers investigation found that some of those patients appeared to qualify for charity care.
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