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Million-Dollar Doctors

John Ryan

If you get seriously ill in Washington state, you've got about 90 hospitals to choose from. Most of those hospitals are either nonprofit organizations or government agencies. That means they don't have to pay the property and income taxes that regular businesses do. In return for the tax breaks, the IRS restricts what nonprofit groups can do with their money, including how much they pay their top officials. Even so, documents filed with the IRS show Seattle–area hospitals rewarding their top employees with incomes of more than $1 million a year.


A heart rate monitor lays down a steady beat inside the emergency room at Swedish Medical Center on Seattle's First Hill. This is the nurses' station. It's a sort of electronic hub for the E.R.

Nurses at Swedish start at about $25 an hour. But for top doctors and executives at hospitals like Swedish, the paychecks dwarf that figure.

KUOW has learned that 15 nonprofit hospital leaders in the Seattle area earned at least $1 million in 2007. This elite group includes the CEOs of Swedish, Providence, Virginia Mason, Group Health, Seattle Children's and MultiCare in Tacoma. Another three dozen hospital officials in King, Pierce and Snohomish counties earned at least half a million that year.

Swedish CEO Rod Hochman made $1.5 million in his first nine months on the job in 2007. His predecessor earned more than $2 million the year before.

Hochman's pay package included an expense account bigger than most of his employees' salaries. He got more than $120,000 for his relocation and another $13,000 for other expenses.

Swedish officials wouldn't disclose how Hochman spent that money. They also declined to provide the hospital's audited financial statement, or a copy of its compensation philosophy.

The latest tax documents filed with the IRS do show seven officials at Swedish earning at least $1 million a year.

Arkava: "I didn't realize they make that much."

Linda Arkava is a nurse, and a union rep, at Swedish. She met me on the sidewalk in front of the hospital at the end of her 12–hour shift, still wearing her paisley scrubs.

Arkava: "I'm not great at math but that's like 20 times my salary."

Arkava started out at Swedish carrying food trays and washing dishes. Those are some of the hospital's lowest paying jobs. The starting wage for housekeepers at Swedish today is about $12 an hour.

Arkava: "They are the people who help us prevent infections by cleaning our rooms really well."

Like many hospitals, Swedish has been hurt by the recession. Their investments are down with the stock market. Fewer patients are showing up. And patients who do show up often can't pay their medical bills.

Swedish has laid off 200 employees this year, all in back–office positions. Arkava says it might be nice if some of the dollars now going to a few executives could be redirected to hire front–line caregivers. But she doesn't think that's going to happen.

Arkava: "The reality is, health care is a business. Whether we like it or not, they do have to have competitive salaries."

The Providence Health system is a ministry of the Roman Catholic church. It's based in Renton and operates 26 hospitals around the West. A page on the Providence website spells out the organization's core values. It says Providence advocates for social justice. It concludes, "We seek simplicity in our lives and in our work." In 2007, Providence CEO John Koster earned $2.1 million.

Washington state law says nonprofit pay can only be comparable to what public servants earn. Records obtained by KUOW show the most that any employee earned at a government hospital in the region in 2007 was about $950,000.

The IRS can impose tax penalties or even revoke a charity's nonprofit status if it deems compensation to be unreasonable.

An IRS report this year on the nation's tax–exempt hospitals found almost no executive compensation violating the federal standard for reasonable pay. But the agency says it has a hard time enforcing the law because the notion of what is reasonable is so imprecise.

Jeff Veilleux is chief financial officer at Swedish. He says the hospital takes the IRS guidelines very seriously. But he says, if you want high–quality health care, you've got to pay for high–quality executives.

Veilleux: "If the industry decides it's not going to pay competitive wages in the general marketplace, the talent level is going to deteriorate. We would be at a significant disadvantage in the effective delivery of health care to our patients, which is where it matters."

Berger: "I can't buy the arguments that there aren't some doctors out there who would be willing to do this work for less than millions and millions of dollars."

Ken Berger is head of Charity Navigator. It's a watchdog group based in New Jersey. He says the average CEO of a large nonprofit group earns a quarter million a year. He says anything over a million is just off the charts.

Berger: "If you want those kind of salaries, go and work for a for–profit."

Executive salaries are set by a hospital's board of directors, or by a compensation committee of the board. The volunteer board at Swedish includes three doctors and nine former executives of companies including Nordstrom, QFC and Microsoft.

Tom Van Dawark is chair of Virginia Mason's compensation committee and a former executive at Todd Shipyards. I asked him whether people at nonprofit hospitals should be making the same pay as people in the for–profit sector.

Van Dawark: "They are recruited equally whether they're working for profit or nonprofit organizations."

Ryan: "Isn't there something different about working for a nonprofit group?"

Van Dawark: "In terms of being a senior leader of a nonprofit versus a profit, I would say no."

Ryan: "People aren't motivated by some kind of mission that the nonprofit group has, rather than the mission that a for–profit has, which is, basically, the profit?"

Van Dawark: "I think the mission is equal. I think people are in health care because they care about delivering a quality product to their customer, i.e. the patient. It's all about the patient."

The only major for–profit hospital in the Seattle area is Auburn Regional Medical Center. Auburn wouldn't disclose its pay levels to KUOW.

The highest paid nonprofit hospital workers in the region in 2007 were Mike Rona and Ralph Pascualy.

Virginia Mason President Mike Rona got a $4 million payout when he left Virginia Mason that April after 26 years. And Doctor Ralph Pascualy topped the list with a $10 million income. Swedish discontinued Pascualy's sleep–medicine clinic that year. Both men cashed in a type of "golden handcuff" retirement plan available only to the highest–paid employees at tax–exempt agencies.

Pascualy told KUOW he only made about a half million a year during his eight years at Swedish. He says his unparalleled income the year he left came from a lucky decision. He'd put his retirement plan in wildly successful mining stocks. He'd also sold his medical practice to Swedish when he started working there in 1999. Those funds went straight into his retirement plan.

Pascualy says a confidentiality agreement with Swedish prevents him from disclosing the amount of that sale.

Swedish CFO Jeff Veilleux says, when it comes to big bucks in health care, nonprofit hospitals have nothing on insurance and pharmaceutical companies.

Veilleux: "Those CEOs make eight digits routinely, and they have perks galore that completely outweigh anything that nonprofit health care does, not just Swedish, but any nonprofit health care. I think you'd be stunned at the difference."

Many nonprofit groups are just now filling out their tax returns for 2008. It's a lot more work than it was in the past. For the first time, the IRS is requiring detailed information on all sorts of executive compensation; including housing allowances, country–club memberships and dozens of other perks.

The new tax forms will shine more light than ever before on the ways hospitals spend the billions they get from patients and insurers each year.

I'm John Ryan, KUOW News.

© Copyright 2009, KUOW