In a year when Carolinas HealthCare System eliminated 100 management positions as part of a goal to cut $110 million from its 2015 budget, the system’s CEO Michael Tarwater received $5.3 million in total compensation in 2014, an increase of 7.7 percent over the previous year.
Tarwater, 61, who has led the $8 billion nonprofit system since 2002, received a salary of $1.3 million, two bonuses totaling $3.3 million, and other compensation, including retirement and health benefits of $690,280, according to figures released Wednesday.
Each of the top 10 executives at Carolinas HealthCare received more than $1 million in total compensation in 2014. Laurence Hinsdale, who retired in December, received $1.9 million in 2014 and is not being replaced.
Among nonmanagement employees, about 21,000 in Carolinas HealthCare’s Charlotte-area hospitals received incentive bonuses of $1,000 each, and 6,806 others received bonuses of $300 or $600 each. Those bonuses totaled about $25 million, in addition to annual pay raises, which averaged 2 percent. All compensation programs are performance-based, according to Debra Plousha Moore, chief human resources officer.
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Carolinas HealthCare’s compensation announcement comes at a time when health officials, lawmakers and business leaders agree the national landscape is changing rapidly and the cost of medical care is rising at an unsustainable rate.
In the past year, Tarwater and his team have said cutbacks are necessary because of federal and state budget cuts in Medicare and Medicaid reimbursement. That includes refusal by North Carolina and South Carolina lawmakers to expand Medicaid eligibility under the Affordable Care Act.
A committee of the system’s board 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.
“Having talented leaders capable of managing one of the nation’s most comprehensive health care systems in a very complex environment allows Carolinas HealthCare System to maintain its mission and provide the best care to all of our communities,” said board Chairman Edward Brown, president of Hendrick Automotive Group.
Carolinas HealthCare is one of the largest public hospital systems in the country and the largest employer in the Charlotte region. It operates or manages more than 40 hospitals, with 60,000 employees across three states. The system is a tax-exempt hospital authority, created by state law. Like other nonprofits, it retains its earnings and reinvests them in expansion and improvements.
Consultants help set pay
Before 2009, Carolinas HealthCare released only base salaries for top executives. A change in state law required public hospitals to disclose total compensation of the highest-paid executives. That same information is available through IRS reports for private nonprofits, such as Novant Health.
Winston-Salem-based Novant, which owns four hospitals in Mecklenburg County, has not yet filed its 2014 IRS form. In 2013 CEO Carl Armato received a salary of just over $1 million and a bonus of $917,964.
His total compensation was about $8 million, up from $1.7 million the year before. But that jump is deceiving, resulting from a one-time payout because of Novant’s switch from a defined benefit pension for top executives to a defined contribution plan, similar to a 401(k). Armato’s pension payout totaled $6.1 million.
Novant, with $3.6 billion in annual revenue for 2013, operates 14 hospitals in four states.
Both Carolinas HealthCare and Novant Health use consultants to guide them in setting executive pay.
Integrated Healthcare Strategies, a Minneapolis-based firm that works with Novant’s board, surveyed more than 1,300 mostly nonprofit hospitals in 2014. In systems with more than $1.5 billion in revenues, median total compensation for CEOs, including benefits, was $1.7 million.
Kevin Talbot, executive vice president with Integrated Healthcare, said Charlotte’s nonprofit systems are among 30 or 40 in the country with net revenues of more than $3 billion and need to provide competitive compensation to recruit and retain the best executives.
CEO pay continues to rise, Talbot said. “But the increase has been about what you would expect, in the 3 percent range (per year) over the last 10 years. … Ultimately it’s up to the boards to decide how to pay their CEO and their top executives.”
High salaries questioned
In recent years, nonprofit hospitals in the Charlotte region have posted strong profits, raised prices and built up big reserves. As executive pay has continued to rise, some consumer advocacy groups have raised questions.
Ken Berger, president of Charity Navigator, a group that surveys 8,000 nonprofits of all types, said nonprofit hospitals that pay “ridiculously high salaries” are becoming indistinguishable from for-profit companies, and he questions whether they should continue to be tax-exempt.
“Most people who work in the nonprofit sector understand there is a public mission and they do not expect to have salaries that compare to for-profits. … Every taxpayer is subsidizing the nonprofits, and you’re not expecting to become a millionaire.”
When hospitals claim they must pay high salaries to retain talented executives, Berger points to the American Red Cross, which operates across the country and reported revenues of $3.5 billion for fiscal year 2013. It paid its CEO about $600,000.
Dr. Roy Poses, a professor at Brown University medical school and president of the nonprofit Foundation for Integrity and Responsibility in Medicine, blogs about hospital executive compensation and says the story, no matter what the city, is usually the same.
“Executive pay goes up much higher than any reasonable index. Higher than inflation, higher than the pay of other employees,” he said. “The boards are (made up of) executives of other companies and they want pay to keep going up. … Why is it just that CEOs are compared to CEOs? How about comparing the CEOs to the docs … who get sued if things go wrong?”
Poses commended Carolinas HealthCare for being a safety-net hospital that provides charity care. But he questioned why “a hospital that has for its mission providing charity care for poor people makes its executives so rich. … Historically the people who took care of the poor … did not themselves become rich doing it.”
Hospital officials say they must stay financially sound to provide care for everyone, including free care for those who can’t pay.
Carolinas HealthCare provided about $1.5 billion in “community benefit” in 2013, including $383 million in free care to low-income and uninsured patients. Novant Health provided $566 million in “community benefit” in 2013, including $129 million in charity care.