24 June 2010
California Edition
Calendar
June 25
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Hospital CEO Pay Averages $737K
Many Heads of Non-Profit Facilities Earn Above $1M
The chief executive officers of California’s
not-for-profit hospitals earned average
annual compensation of more than
$737,000 during 2007-2008, while 16 CEOs
took home pay that topped $1 million.
Payers & Providers complied the data
through a four-month study of the tax
returns and financial data of nearly 120
hospitals throughout California. The full
results of the study – including interviews
with salary experts and hospital officials –
will be published on June 28 as part of a
special fee-based white paper.
The average base salary for CEOs was
$517,123 during 2007-2008. The timeframe
was spread out over a two-year period
because of the uneven availability of tax
returns for each institution.
Additional compensation – which
included bonuses, incentive pay, deferred
compensation, retirement pay and expense
accounts, among others – averaged
$212,309.
Hospital CEO compensation is often a
fiercely guarded secret, but the data from
this study suggests that CEO salaries have
risen dramatically over the past decade.
According to a Hay Group survey
published in 2001, hospital CEO base
salaries nationwide reached a median of
$231,000, while the median of overall
compensation totaled $242,000.
NON-PROFIT HOSPITAL CEO SALARIES
A PAYERS & PROVIDERS EXCLUSIVE WHITE PAPER
Publication Date: June 28, 2010
$149 (Executive Summary) $275 (Summary and Salary Data)
Call (877) 248-2360, ext. 2 to order, or CLICK HERE
!!!"#$#!%&!'(&)*+!,!'*-./0)*+!'1%2/+3/456!778
Pay was significantly higher if the CEO
ran a hospital with revenue of more than
$200 million: base pay reached a median
of $306,400, while the median of overall
compensation reached $316,400. The
median in the Payers & Providers study is
significantly higher.
The highest paid hospital executive in
the survey was J. Kendall Anderson, CEO
of John Muir Health, which operates two
hospitals in Contra Costa County.
Anderson earned $7.45 million in 2008,
of which $5.3 million was a lump sum
retirement benefit whose payout was
required under IRS regulations when
Anderson turned 65 that year. Anderson’s
base salary of about $745,000 was also
supplemented by payments from long-
term performance incentives and
deferred pay, John Muir officials said.
Anderson earned about $1.5 million in
2007, his compensation also boosted by
incentive payments.
Anderson’s 2008 pay package made
him among 11 hospital executives whose
compensation exceeded the cost of the
charity care provided by their hospitals
during the reporting year, according to
data from the Office of Statewide Health
Planning and Development. However,
Continued on Next Page
 Payers & Providers
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In Brief
Bill Would Permit Medi-
Cal Plans to Join
Exchange
A bill pending in the state Legislature
would allow the quasi-public Medi-Cal
managed care plans and possibly even
county-operated health plans to accept
individual and small-group enrollees
through the federally-mandated health
insurance exchange that will begin
operating in 2014.
In its current form, SB 900,
authored by Sen. Elaine Alquist, D-
Santa Clara, would permit
participation in the exchanges of
“local initiative plan(s), a county-
organized health system, or a joint
venture of local initiative plans and
county-organized health system(s).” A
Senate Health Committee hearing on
Alquist’s bill is scheduled for next
week.
Howard Kahn, chief executive
ofcer of L.A. Care Health Plan,
supports the inclusion of the Medi-Cal
managed care insurers. “We offer
additional choices, as well as strong
relationships with the providers,” he
said.
The Assembly version of the
exchange bill, AB 1602, does not
contain such a provision, although
Kahn said a compromise bill could be
crafted between the two.
Kahn, who is current president of
the California Association of Health
Plans, said the trade group has yet to
take a position on Alquist’s bill.
The California Hospital Association
has also yet to take a position on the
bill, although some hospital industry
representatives are concerned the clout
wielded by some of the larger Medi-
Cal managed care players could be
used to leverage hospitals and provider
networks in an exchange.
“The state-sponsored exchanges are
meant to focus on the subsidized
individual market,” said Jim Lott,
executive vice president of the
Hospital Association of Southern
California. “They were not intended
for use by the Medi-Cal managed care
plans.”
NEWS
Salaries (Continued from Page One)
officials from John Muir and other
providers noted that the data provided
to OSHPD does not include the making
up underpayments from the Medi-Cal
and other community benefits.
The Payers & Providers survey did not
include for-profit or investor-owned
facilities, which are not required to
South Coast Head Was Self-Dealing
He Ran Hospital; His Firm Collected Its Patient Debts
The chief executive ofcer of Loma Linda
University Medical Center’s new campus in
Riverside County owns a company that
collected patient debts at an Orange County
hospital he ran until last year – a situation
described as unique and troubling by
industry ofcials and consumer advocates.
While Bruce Christian was president of
South Coast Medical Center in Laguna
Niguel between 2005 and 2009, his agency,
Corona-based Metro-Republic Commercial
Services, was paid more than $100,000 to
collect debts from the hospital’s patients,
according to hospital tax returns led
between 2005 and 2007.
“It’s unusual and atypical,” said Jim Lott,
executive vice president of the Hospital
Association of Southern California and a
member of the Payers & Providers editorial
board. “You don’t see those kind of mixed
interests in the industry at all.”
South Coast was sold by Adventist Health
to St. Joseph Health System in mid-2009.
Christian, who had been hired in early 2005
to run the hospital and nd a potential buyer,
left South Coast in March 2009.
A statement issued this week by Adventist
Health acknowledged what it termed an
“unusual” situation between Christian’s
company and South Coast.
“No changes were made in the
relationships because his position at South
Coast was interim and temporary while we
continued to try to sell the facility,” the
Adventist statement read in part. “The
hospital board was aware of the situation
and South Coast was also using many other
(collection) agencies at that time.”
Christian’s rm has had a business
relationship with Adventist since at least the
early 1990s, according to Metro-Republic
Controller Gina Mondello. She added that it
ended its debt-collecting contract with South
Coast in early 2009. An Adventist
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Page 2
publicly disclose their tax returns. Some
district hospitals and other publicly-
controlled institutions were also omitted.
To order the CEO salaries white paper and
salary data, call 877-248-2360, ext. 2, or
visit https://www.managedcarestore.com/
pandp/p&pwhitepapers.htm.
spokeswoman said that Metro-Republic may
still be trying to collect on behalf of the system,
but it is currently not referring any new
business to the rm.
The Murrieta campus of Loma Linda
University Medical Center is scheduled to
open in 2011. Published reports cite Christian’s
ties to the hospital as early as September 2008,
where he is referred to in newspaper reports as
the planned hospital’s general manager or
executive liaison.
A statement issued by Loma Linda said that
Christian had disclosed his relationship with
Metro-Republic and was not in violation of
either its employment or conict-of-interest
policies.
“We are aware (sic) and full disclosures were
made of Mr. Bruce Christian’s tenure at South
Coast Medical Center and at Metro Republic
Commercial Services prior to his appointment
as CEO...Mr. Christian currently works full-time
for Loma Linda University Medical Center and
is not employed by or plays an active role in
the management of any other institution or
company,” the statement read in part.
However, Metro-Republic ofcials conrmed
that Christian still has ties to the company, but
is currently on administrative leave – as he was
during his South Coast tenure. Mondello noted
that Christian does not have any say in
collections or company operations while
absent.
C. Duane Dauner, the president of the
California Hospital Association, said he could
not recall another instance where a hospital
CEO owned a company that collected debts
from its hospital’s patients.
“It’s very troubling,” said Anthony Wright,
executive director of Health Access, a
Sacramento-based advocacy group that has
long criticized some of the relationships
between collection agencies and hospitals. “It
does seem that there was a conict of interest.”
 Payers & Providers
For Hospital CEOs,“Highly-Paid” Is A Relative Term
They Earn a Lot, But it Reflects The Challenges of Job And Their Expertise
How much is too much?! This question arises
when the topic turns to executive
compensation.! Salaries must be considered
in the context of responsibility, importance
and value to society.! !
Hospitals are on the front lines of
healthcare.! They are open 24 hours a day,
seven days a week, providing access to high-
quality health care services to all patients,
regardless of their ability to pay.! Hospitals
are where life’s greatest joys and deepest
sorrows play out every hour of every day. !
The late Peter Drucker, one of the most
renowned management consultants of the
second half of the 20th Century, stated that,
“hospitals are the most complex form of
human organizations we have ever
attempted to manage.”! Today, the
complexities and challenges facing hospital
CEOs are far greater than in the 1990’s
when Peter Drucker made that comment.! !
Being a hospital CEO doesn’t mean the
individual is simply managing a facility and
employees.! A hospital CEO is responsible
for overseeing the work of a vast array of
clinical and administrative professionals –
doctors, nurses, pharmacists, laboratory
scientists, radiology technicians, health
information technology experts and food
service and housekeeping personnel, to
name just a few.! Hospital CEOs also bear
the responsibility of managing a nancial
structure in which the actual cost of
providing care is often underpaid –
especially from Medicare and Medi-Cal,
the two largest payers for many hospitals.
And, hospital CEOs must navigate a
plethora of complex and, sometimes
contradictory, state and federal regulations
that make the timely delivery of high-quality,
affordable care nearly impossible.!
Hospitals are often among the largest
employers in their communities, supporting
hundreds or thousands of employees.!
However, a hospital CEO’s job typically does
not end when he or she walks out the door
of the hospital.! CEOs often are involved in
community efforts to address the health and
well-being of all residents.! Hospital CEOs
are key leaders who are directly responsible
for their community’s most precious resource
– acute care – when people are in greatest
need for life-saving health care services.!
The process of establishing a CEO’s
compensation is rigorous, and involves
OPINION
outside independent compensation
experts and impartial members of the
hospital governing board.! The governing
board is typically comprised of local or
regional leaders.! They are required by law
to ensure that the hospital meets its
mission and remains nancially healthy.!
Recruiting, retaining and rewarding the
most able executive leader is part of the
hospital board’s obligation.! Often,
executive compensation is linked to
specic measures including patient safety,
quality, efciency, patient satisfaction,
employee morale and nancial
By C. Duane Dauner
performance.!
Hospital CEO searches are conducted
nationally, even for smaller hospitals.! The
marketplace for executive talent has
evolved into a national arena.! Today, most
hospital organizations consider candidates
from across the country when seeking a
CEO.! The results are better-qualied
candidates and more competitive
compensation than in the past.! An
effective CEO saves his or her organization
far more than he/she earns.! A CEO’s talent
and abilities determine how well the
hospital is managed, how productively
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Page 3
and prudently it uses resources and
whether the hospital is improving
access, quality and patient safety.
Hospital CEOs earn far less than
professional athletes – but who is more
valuable to society?! !
Hospital CEO salaries are not a
signicant factor in the cost of
healthcare.! The average annual total
compensation for a hospital CEO is less
than one-tenth of one percent of a
hospital’s budget.! !
Not-for-prot hospitals have few
options to adequately compensate
CEOs.! All money paid to these CEOs is
transparent and must be reported
annually in compliance with federal
regulations.! Retirement programs for
CEOs take two forms:! basic pension
plans and supplemental pension
programs.! Many supplemental pension
plans must be paid, or reported as
compensation, at the time such
pension amount is vested.! Thus, in a
given year, a retirement payment may
be reported as a lump sum amount.!
This number may, on the surface,
appear high, but when taken in the
context of decades of successful
executive leadership by a CEO, the
one-time retirement payment is
negligible and reasonable.! Usually, the
pension payment is accrued over many
years.!
How much is too much?! It’s easy to
ask the question, but when the
discussion involves leaders in charge of
organizations where life and death
decisions are made every day, we need
the best talent available to manage
hospitals.! We and our loved ones
depend on them. !
In the nal analysis, the lifetime
compensation of a hospital CEO must
reect his or her contribution to society.!
C. Duane Dauner is the president
of the California Hospital
Association, which represents
most of the state’s not-for-profit
and investor-owned hospitals and
hospital systems.
Payers & Providers
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OPINION
Time To Reexamine Hospital CEO Pay
Compensation Is Out Of Line With Current Realities
Most hospital chief executive officers log
long hours maintaining a delicate
equilibrium between improving margins
and outcomes and staying out of the
crosshairs of the medical staff, whom they
cannot fire but can certainly get them
shoved to the pavement. Almost all do so
without the chest-thumping hubris that
has come to define the American CEO in
recent decades.
Their jobs are often thankless, but
certainly not underpaid.
As I began tallying four months of
searching through the tax returns and
financial data of more than 100 hospitals
throughout California, I was taken aback
by the final numbers. The average non-
profit hospital CEO earned more than
$500,000 in base salary, and more than
$700,000 in overall compensation.
More than a dozen CEOs took home
seven-figure incomes.
However, I was not terribly
Ron
surprised. There has been a huge pay Shinkman 33% during the Great Recession, to 8
inflation among top executives in the
U.S. in recent years. There is simply no
reason why this should not permeate
hospitals as well.
Of course, that old saw about executive
pay always gets trotted out to explain such
trends. Good pay is required to attract and
retain the top talent, the boards determine
compensation using what other CEOs
earn, etc.
The prevailing healthcare paradigm
renders puts many dents in those
arguments.
Hospital CEOs have historically been at
the top of the food chain among non-
profit executives when it comes to pay.
However, a high six-figure and even
seven-figure pay package is on the high
end for any non-profit, no matter its
institutional complexity.
Moreover, 60% of non-profit hospital
revenue is derived from taxpayer-funded
programs such as Medicare and Medi-Cal.
Given the Obama Administration’s move
to cap the salaries of executives who took
federal bailout money, hospital CEOs
should consider their somewhat similar
circumstances.
Medicare and Medi-Cal revenue streams
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Page 4
also help cover the salaries of hospital
executives. While there is no scientific data to
support the notion that overutilization of
medicine occurs to help cover the expanding
pay of hospital executives, media reports such
as “My Father’s Broken Heart,” Katy Butler’s
recent article in the New York Times Magazine
or “The Cost Conundrum,” Dr. Atul
Gawande’s eye-opening 2009 article in the
New Yorker magazine, do not put such an
argument outside the realm of possibility.
Since the federal healthcare reform plan will
rely heavily on cost controls to be successful,
it is reasonable to examine executive salaries
as part of the holistic picture of expenditures.
Lastly, there has been an increasingly
desperate drama unfolding the past several
years at California hospital emergency rooms.
Many brim with patients who lack healthcare
insurance and finally sought medical
By care because they could no longer
wait. The number of uninsured
Californians has swelled a remarkable
million. If hospitals cannot provide
appropriate levels of charity care because
they must meet the rising tide of executive
salaries, this becomes a moral rather than just
a fiscal issue.
Of course, most hospital CEOs are not
going to heed my suggestions. Who am I to
tell them how much they should earn?
I would therefore suggest they undertake a
modest experiment. For one year, they should
post their compensation figures in the ER –
alongside the charity care information they
are required to provide for patients and their
families.
This would no doubt make their already
challenging jobs even more difficult. But I am
fairly certain it would clarify for them a
question many of us, CEO or not, ask
ourselves as we try and get through the
workday: “Why am I here?”
Ron Shinkman is the Publisher of Payers &
Providers.
Op-ed submissions of up to 600 words are
welcomed. Please e-mail proposals to
editor@payersandproviders.com, or call
(877) 248-2360, ext. 3.
Payers & Providers MARKETPLACE/EMPLOYMENT Page 5

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