Prognosis Profits

Carolinas HealthCare’s planes used for business, personal trips

This story was originally published in the Observer on 9/20/13.

Michael Tarwater, the CEO of one of the nation’s largest hospital chains, enjoys a rarely discussed perk: the freedom to fly planes owned by the nonprofit system for business and pleasure.

Flight logs provided by Carolinas HealthCare System show Tarwater took at least 29 personal flights on the system’s planes from 2008 through 2012. During that time, he also has been on board 101 flights that the system said were for business.

Tarwater’s personal flights are counted as part of his compensation, which totaled $4.8 million in 2012, according to the hospital system.

Widely recognized for guiding Mecklenburg County’s largest employer through a period of remarkable growth, Tarwater has also honed another skill: He’s an accomplished pilot.

Tarwater served as co-pilot on more than half of the Carolinas HealthCare flights he was aboard during the five years ending in 2012, system records show. He holds an Airline Transport Pilot certificate, the highest license issued by the Federal Aviation Administration.

The hospital system owns five planes and three helicopters, which are used mainly for transporting patients and organs.

Tarwater declined to be interviewed, but he told the Observer that since 2008, he has reported an average of $2,475 per year as income attributable to his personal flights. The personal travel was reported in accordance with IRS guidelines, officials said.

But IRS rules allow Tarwater to value those flights at amounts far lower than the cost of operating the planes. Had he chartered the flights from a private company, he likely would have paid roughly $20,000 a year, on average, the Observer found.

A number of Tarwater’s personal trips were to Dothan, Ala., where his daughter and grandchildren live. Others were to Gulf Shores, Ala., near Pensacola, Fla., where his father lives.

In one typical case, Tarwater flew from Charlotte to Dothan on Sept. 28, 2012, and returned two days later. SkySouth, a charter company based in Burlington, would have charged about $4,900 for the trip, the company’s general manager said.

Calls to five other systems suggest the practice of using hospital planes for personal travel isn’t common. A number of systems – including Novant Health, Duke University Health System, UNC Hospitals and the Mayo Clinic – say they do not allow executives to use their aircraft for personal flights.

‘It seems inappropriate’

Some experts believe the practice is rare – and questionable.

“It seems inappropriate for them to use (planes) for personal purposes, given that they are being supported via tax exemption,” said Gerard Anderson, director of the Johns Hopkins Center for Hospital Finance and Management. “So we are all paying for the vacation the CEO is taking.”

As nonprofits, Carolinas HealthCare hospitals in Mecklenburg, Cabarrus and Lincoln counties get tax exemptions worth more than $100 million a year, the Observer estimated. CHS, the state’s largest hospital system, owns more than $1 billion in tax-exempt property and pays no corporate income taxes or sales taxes.

The system, which brings in about $7 billion in annual revenue, says it earns its tax exemptions by providing extensive benefits to the community, including more than $280 million last year in free and discounted care for uninsured patients who can’t afford to pay their bills.

Tarwater’s personal trips accounted for fewer than 1 percent of the flights taken by CHS planes, the system said.

All personal use of the system’s airplanes “follows IRS guidelines and Carolinas HealthCare System policies,” the system said in a written statement.

With CEO approval, other senior CHS executives are also allowed to use the planes for personal travel, the system said. CHS did not identify other executives who have done that. Such flights are “very rare,” and are reported as income in keeping with IRS guidelines, said system spokeswoman Amy Murphy.

The vast majority of Carolinas HealthCare’s business travel is booked on commercial airlines, the system said. But from 2008 to 2012, executives boarded about 9 percent of CHS flights.

The system said it considers many factors when deciding whether to use its planes for business trips: “short time frames to coordinate and book travel, inadequate commercial service at destinations, long drive times, time that would be spent waiting for departures and connections of commercial aircraft, and an ability to work more efficiently.”

A frequent flier, co-pilot

Tarwater has frequently co-piloted several Carolinas HealthCare planes, including a twin-engine business jet called a Cessna Citation. According to the FAA, he has a “type rating” that authorizes him to serve as the pilot-in-command in a Citation.

But he has done much of his recent flying on the system’s six-seat Beechcraft Baron, a twin-engine piston plane that Carolinas HealthCare acquired in 2011 for $700,000.

Typically, the plane is used about six days each month, data obtained by the Observer shows. The other planes in the CHS fleet are used far more frequently. Unlike the other CHS aircraft, the Baron generates no revenue because it’s not chartered and not used to transport patients.

Of the 93 trips that CHS reported for the Baron through the end of 2012, Tarwater served as a co-pilot on 29 of them – or about 31 percent. Nineteen of those flights were personal trips, according to Carolinas HealthCare data.

One former airplane mechanic said he saw golf clubs being loaded on the plane about a half-dozen times. Pilots, he recalled, sometimes said, “I’m ferrying the golfers today.”

Murphy, the CHS spokeswoman, noted that the Baron is smaller than the system’s other four planes, and less expensive to operate. She said the system bought the plane as an economical way to take executives on shorter business trips – and to areas served by small airports that aren’t designed for larger planes.

When the system bought the Baron, it did not have to add hangar space or hire more pilots or mechanics, Murphy said.

Fueling and insuring it costs more than $50,000 a year, the system said.

‘All taxpayers are paying’

To be sure, personal trips on company planes are much more common in parts of the for-profit world.

Bank of America CEO Brian Moynihan received $477,000 worth of personal use of corporate aircraft in 2012, for example. Coca-Cola Bottling Co. chief executive Frank Harrison III received more than $133,000 of personal aircraft use last year.

But nonprofit experts say it’s extremely rare for nonprofit leaders to take personal flights on planes owned by their organizations. Taxpayers are essentially subsidizing such flights, experts say, because they must pay higher taxes to make up for what nonprofits don’t pay.

“I think it’s a travesty, and it’s a waste of their tax-exempt status,” said Ken Berger, CEO of Charity Navigator, a watchdog group that studies nonprofits. “All taxpayers are paying for this.”

Pablo Eisenberg, another nonprofit expert, called it an “outrage.”

“That is not a common practice (in the nonprofit world), and it shouldn’t be allowed. Period,” he said.

Novant Health, which runs the three Presbyterian hospitals in Mecklenburg County, owns a twin-engine turboprop that senior leaders use for business trips around the system’s four-state coverage area. But “personal use for recreational or entertainment purposes is not allowed,” Novant said in a written response to questions.

One exception, the system said, was a 2012 case in which a senior leader used the plane to attend a family funeral while also meeting a work obligation. The system didn’t disclose the executive’s identity or the flight’s destination.

UNC Hospitals leases two helicopters for patient transports and also buys access to planes owned by another organization. But the system does not allow its officials to use the aircraft for personal flights, spokeswoman Karen McCall said.

Duke Medicine owns two helicopters but no planes. That system uses the helicopters for medical purposes but prohibits personal flights.

An ethical question

Tarwater obtained his Airline Transport Pilot certificate in 2005, according to the FAA. By then, he had already logged nearly 1,600 hours of flight time. Among his accomplishments: piloting a trans-Atlantic crossing from Nottingham, England, to North Carolina.

Piloting the system’s planes helps Tarwater fulfill requirements aimed at keeping flight skills sharp. Pilots who want to carry passengers or navigate using electronic instruments, for instance, have to show recent flight experience.

Tarwater does not schedule any of his flights on Carolinas HealthCare planes for the purposes of meeting such requirements, the system said. But Murphy noted that “any flight during which a licensed pilot functions as a pilot is counted for purposes of maintaining currency requirements.”

Some charity experts question whether nonprofit leaders should be allowed to use planes owned by their organizations to pursue their love of flying. Said Eisenberg: “I think it’s ethically to be criticized.”

Staff writers Karen Garloch and Gavin Off, and researcher Maria David contributed.

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