Carolinas HealthCare CEO was paid $6.6 million in 2015

In his last full year as CEO of Carolinas HealthCare System, Michael Tarwater received $6.6 million in total compensation, an increase of 26 percent over the previous year’s $5.3 million.

Tarwater, 62, who has led the $8 billion public, nonprofit system since 2002, has announced plans to retire in June. His successor has not yet been named.

In 2015, Tarwater received a salary of $1.28 million, two bonuses totaling $5 million, and other compensation, including retirement and health benefits of $305,318, according to figures released Thursday by the largest hospital system in the Charlotte region.

Part of the increase is related to Tarwater’s pending retirement. “As (his) 35 years of service and leadership at Carolinas HealthCare System nears an end, certain arrangements are beginning to be paid,” said spokeswoman Amy Murphy. “This is common for many organizations and executives.”

Thursday’s report shows that each of the top 10 executives at Carolinas HealthCare received more than $1 million in total compensation for 2015. (See box.) More than 96 percent of the system’s 32,500 nonmanagement employees in the Charlotte region received smaller bonuses, according to Debra Plousha Moore, chief human resources officer.

Among nonmanagement employees, more than 22,000 in Carolinas HealthCare’s Charlotte-area hospitals received 2015 incentive bonuses of $1,000 each, and 7,674 others received bonuses of $300 or $600 each, Moore said. Another “special bonus” program benefited about 24,000 employees, who received $1,000 each, and 7,568 others, who got $300 or $600 each. Total bonuses for nonmanagement employees came to $53.4 million, in addition to annual pay raises that averaged 2 percent.

Carolinas HealthCare is one of the largest public hospital systems in the country and the largest employer in the Charlotte region. Its Charlotte-area operation has 12 hospitals, but overall the system owns or manages about 40 hospitals, with 60,000 employees across three states. Like other tax-exempt nonprofits, it retains its earnings and reinvests them in expansion and improvements.

A committee of the system’s board of commissioners sets executive compensation based on multiple measures, including financial performance, quality of care, and surveys that reflect the satisfaction of patients, physicians and other employees, hospital officials said. Like other hospital systems, CHS uses consultants to guide it in setting executive pay by comparing peers at hospital systems of comparable size, complexity and performance.

Novant Health reports

Winston-Salem-based Novant Health, which owns four hospitals in Mecklenburg County, has not yet filed its 2015 IRS form. In 2014, CEO Carl Armato received total compensation of $2.69 million, including a salary of $1.19 million and a bonus of $919,738.

With annual revenue of $3.8 billion for 2014, Novant Health operates 14 hospitals in four states.

Kevin Talbot, an executive vice president with Integrated Healthcare Strategies, a Minneapolis consulting firm that works with Novant Health, said Charlotte’s nonprofit systems are among the top 40 in the country, with net revenues of more than $3 billion. He said hospital boards need to provide competitive compensation to recruit and retain the best executives.

In a 2015 survey of more than 1,500 mostly nonprofit hospitals, Integrated Healthcare Strategies found that, in systems with more than $1.5 billion in revenues, median total compensation for CEOs was $1.74 million. Salary increases for CEOs continue in the 3-4 percent range, Talbot said.

High salaries questioned

As executive pay continues to rise, some consumer advocacy groups have raised questions.

Michael Thatcher, president and CEO of Charity Navigator, a group that surveys about 8,000 nonprofits of all types (but not hospitals), said executive compensation for Charlotte hospitals is “exceptionally high” for a nonprofit. For example, he said, the CEO of the American Red Cross, a $3 billion organization, makes about $500,000.

Thatcher said citizens have a right to ask: “Who’s holding them accountable? … If you want to earn a high salary, show me exceptional value. … Can you demonstrate that you’re actually meeting your mission and not just revenue targets?”

While some question whether such large hospital systems should continue to be tax-exempt, Thatcher said he’s not sure they should be for-profit either. “Should a medical care facility be nonprofit and mission driven? Or is it a business? I think there are some ethical questions around that.”

In recent years, Carolinas HealthCare has posted strong profits and built up big reserves. According to Standard and Poor’s, Carolinas HealthCare had unrestricted cash reserves of $3.5 billion as of June 2015.

Tarwater and other CHS officials say they must stay financially sound to provide care for everyone, including free care for those who can’t pay.

In 2014, Carolinas HealthCare provided about $1.63 billion in what the industry calls “community benefit,” including $320 million in free care to low-income and uninsured patients. Novant Health in 2014 provided $639 million in community benefit, including $135 million in charity care.

County commissioners comment

On hearing about the latest CHS compensation report, Mecklenburg County commissioner Pat Cotham said, “It’s kind of depressing. … Nothing against Mr. Tarwater personally. He’s led a successful organization. … Generally I struggle with these multimillion-dollar deals. Is anybody really that valuable?”

Cotham said commissioners don’t have “any say” when it comes to Carolinas HealthCare. The system is technically a hospital authority, created by state law in 1943, and is run by a self-perpetuating board that includes top community and business leaders whose nominations get approval from the commissioners’ chairman. Over the years, chairmen have acknowledged that action is basically a rubber stamp.

A recently closed investigation by the U.S. Department of Labor focused on whether the hospital system is a governmental agency, as it claims. On Thursday, commissioner Bill James said that question remains open and might have bearing on compensation.

James said documents in the investigation included a statement by a lawyer for CHS who said hospital debts “have been and will be backstopped by the County’s taxing power.” But James said state law has given commissioners no oversight role in connection with CHS.

“I don’t know how CHS can expect taxpayers to ‘backstop’ their billions of debt with County tax dollars without any oversight over it,” James wrote in an email.

“I do not know what is just compensation for a hospital CEO,” James wrote. But he added that most government agencies have “typical limitations on pay.”

This story was originally published February 4, 2016 at 2:59 PM with the headline "Carolinas HealthCare CEO was paid $6.6 million in 2015."