The top executive at Carolinas HealthCare System received $4.76 million in 2012 compensation, a 12 percent increase over 2011, as the system celebrated a profitable year and met all of its systemwide performance goals, the system announced.
CEO Michael Tarwater, 59, who has led the $7.5 billion nonprofit system for more than 10 years, received a salary of $1.1 million, two bonuses totaling $2.8 million, and other compensation, including retirement and health benefits, of $795,724.
The top 10 executives at Carolinas HealthCare each received more than $1 million in total compensation. Most received increases of more than 8 percent.
The system’s annual release of top executive compensation comes as health officials, lawmakers and business leaders agree the cost of health care is rising at an unsustainable rate.
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In a joint investigation last year, the Observer and The News & Observer of Raleigh found that hospitals in the Charlotte region have posted strong profits, raised prices and built up big reserves during the recession.
It also showed that consolidation has led to the creation of systems with multiple hospitals and doctors’ offices. And those large systems have leverage to demand higher payments from insurance companies, thus contributing to rising health care costs.
Carolinas HealthCare officials said executive compensation is “performance based” and reflects the system’s growth.
In the past five years, the number of hospitals increased from 20 to 38 and net revenue rose from $4.1 billion to more than $7.5 billion. It is the second-largest public hospital system in the country (next to the Veterans Administration) and the largest employer in the Charlotte region. The system has 60,000 employees, including 31,000 in Greater Charlotte.
Non-management employees in the Charlotte market also benefited from the system’s “strong” performance on measures of quality, employee engagement, finances and customer service, said spokeswoman Gail Rosenberg.
More than 20,000 employees received incentive bonuses of $1,000 each, and 6,700 more received bonuses of $300 to $600 because they worked fewer hours in 2012. A total of $23.4 million was paid in bonuses for non-managers in the Charlotte area. That was in addition to annual pay raises, which averaged 2 percent, Rosenberg said.
Consultants who assist hospitals in setting executive compensation say they compare peers at hospital systems of comparable size, complexity and performance.
“If (the CEO) is a high performer, he’s going to get paid higher in the range. That individual is very vulnerable to being recruited away,” said Bob Erra, president of Integrated Healthcare Strategies.
“The last thing a compensation committee wants to do is to lose a leader over pay,” said Erra, whose Minneapolis-based firm works with Novant Health but not Carolinas HealthCare.
For 2012, Integrated Healthcare Strategies surveyed 49 private hospital systems with a median of $3.5 billion in revenues and found the median salary for chief executives was $1,072,000. The median total direct compensation for CEOs (excluding retirement and health benefits) was $1,719,000.
Watchdogs question pay
Hospital officials say they must stay financially sound to provide care for everyone, including free care for those who can’t pay. To keep the best talent, hospital officials say they must offer compensation competitive with private industry.
But officials with two national charity watchdog groups said Tarwater’s compensation seems excessive.
“This is one of the highest salaries I’ve ever heard of,” said Ken Berger, president of Charity Navigator, which surveys 6,000 nonprofits of all types.
“Taxpayers are subsidizing this salary because this organization does not pay taxes We’re not saying that people can’t make significant salaries in the nonprofit sector, but when it gets into millions and millions of dollars, it’s getting beyond common sense.”
Jessica Curtis, director of the Hospital Accountability Project for Community Catalyst in Boston, said hospital executive compensation is “a local question, whether the salary is on par with the performance of that particular system.”
“It does raise an eyebrow for me when you have hospital CEO taking home that kind of pay and on the other hand sending very low income patients to collections and suing them as well.”
The Observer and The News & Observer reported last year that during the five years ending in 2010, North Carolina hospitals filed more than 40,000 lawsuits. Most of the suits were filed by Carolinas HealthCare.
Carolinas HealthCare officials report the system provided more than $1 billion in “community benefit” in 2012, including free and subsidized care to low-income patients.
Most of North Carolina’s hospitals spent less than 3 percent of their 2010 budgets on charity care – free or reduced care for the poor or uninsured. Mecklenburg’s hospitals, all nonprofits, perform better than average, with all spending more than 4 percent on free care for the needy.
U.S. Sen. Charles Grassley, R-Iowa, the most influential member of Congress on nonprofit issues, has noted that some for-profit hospitals provide more charity care than nonprofits, and many nonprofit and for-profit hospitals pay their CEOs comparably.
“Hospitals have to ask themselves,” he said in a statement Tuesday, “whether they’re doing everything possible to fulfill their charitable mission before setting executive salaries.”
Compensation at Novant
Charlotte’s other large hospital system, Novant Health, has not yet filed the IRS form that would make public its executive compensation for 2012. But the private, nonprofit system released its 2011 form late last year.
It showed that Novant paid CEO Paul Wiles $1.15 million in 2011. He retired at the end of that year and was replaced by Carl Armato, who had been chief operating officer for Novant. Armato was paid a total of $1.64 million in 2011.
In May, Novant announced the elimination of 289 management and staff positions, including 103 in the Charlotte market. But officials say the Winston-Salem based system is “financially secure.” It reported a net income of $1 million, revenues of $3.4 billion and $1.6 billion in cash and investments in 2011.
State law requires release
This week’s announcement of Carolinas HealthCare executive pay marks the fifth consecutive year that the system has made public how much it pays top executives in salaries and bonuses.
In prior years, the system released only salaries. But a state law that took effect in 2009 requires public hospitals to disclose total compensation – not just base salaries – of its highest-paid executives. That is the same information already available through IRS reports from private, nonprofit hospitals such as Novant.
Carolinas HealthCare is a tax-exempt public hospital authority created by state law. Although it is not county-owned, the county for decades provided millions of dollars in taxpayer funds to pay for the care of indigent patients. In 2010, as commissioners faced a county budget crisis and observed the hospital system’s increasing profitability, they voted to end the $16 million subsidy.
Novant, based in Winston-Salem, has 26,000 employees and owns 13 hospitals in North Carolina, South Carolina, Virginia and Georgia. The four in Mecklenburg are Presbyterian Hospital, Presbyterian Orthopaedic, Presbyterian Matthews and Presbyterian Huntersville. Staff writer Ames Alexander contributed.
Hospital executive compensation
Others in Carolinas HealthCare System - 2012
• Spencer Lilly, president, Carolinas Medical Center: $633,326
• Robert Larrison, president, Carolinas Rehabilitation: $348,976
• Douglas Roush, president, CMC-Mercy: $262,745
• Christopher Hummer, president, CMC-Pineville: $549,616
• William Leonard, president, CMC-University: $378,369
• Phyllis Wingate-Jones, president, CMC-NorthEast: $761,160
• Peter Acker, president, CMC-Lincoln: $385,847
• Michael Lutes, president, CMC-Union: $488,427
Novant Health - 2011 (2012 not available)
• Dr. Arthur Patefield, chief medical officer: $2,813,856
• Greg Beier, president, Novant Health Operations: $2,623,112
• Carl Armato, president, Novant Health Markets (now CEO): $1,648,354
• Dr. Hayes Woollen Jr., executive vice president: $1,347,057
• Paul Wiles, CEO (retired at the end of 2011): $1,150,649
• Jacque Daniels, chief administrative officer: $1,064,854
• Dr. Stephen Wallenhaupt, chief medical officer: $1,176,730
• Fred Hargett, chief financial officer: $1,070,044
• Lawrence McGee, general counsel: $838,777
• Sallye Liner, chief clinical officer: $682,149
(Novant’s retirement benefits for executives are paid out over several years as the employee nears retirement; the benefit is not paid, like a pension, during retirement. As a result, Wiles, who retired at the end of 2011 after many years of service, earned less total compensation that year than others in less senior positions who had begun to receive higher retirement income.)