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Hospital High Rollers

John Ryan
12/20/2010

KUOW has learned that 19 people working for charities in the Puget Sound region earned more than $1 million in 2008. The nonprofit groups paid the seven–figure sums even as Washington state fell into its worst recession in decades. According to the charities' filings with the IRS, another 59 employees earned at least $500,000 that year.

The charities are the region's nonprofit hospitals. John Ryan brings us this KUOW investigation.



TRANSCRIPT

The million–dollar club includes executives and doctors at most of the region's major hospital systems. In addition, the CEOs at Multicare Health System, Northwest Hospital, Providence Health and Services, and Virginia Mason Medical Center made more than $2 million each.

It might not surprise you that top hospital officials and doctors earn more than 99 percent of American households. Hospitals often have thousands of employees and billion–dollar budgets. Life and death are on the line at these complex enterprises.

Then again, most major hospitals in western Washington are nonprofit organizations. They get tax breaks to do the good things they do for their communities. In return, the IRS requires nonprofits to operate in the public interest, not for private interest. That requirement includes paying only "reasonable" amounts to executives.

Hospitals usually hire consultants to assess the going rate for executives at similar outfits. That's how nonprofits decide what's reasonable. It's a hospital's board of directors that's ultimately responsible for setting executive compensation.

Folsom: "I'm John Folsom, chairman of the board of Multicare Health System."

Multicare runs three hospitals in Tacoma and the Good Samaritan Hospital in Puyallup. The health system paid its CEO Diane Cecchettini $2 million last year and more than $5 million the year before.

Folsom: "Her compensation, frankly, is well–deserved because of her good work."

Cecchetini's income spiked in 2008. She received a $4 million payout of two decades' worth of deferred executive benefits. She declined to be interviewed for this story. Here's John Folsom.

Folsom: "Diane Cecchettini and any CEO of a major hospital organization deals with a very, very complex organization. The marketplace calls for that level of compensation just because of the difficulty and the need for high–level business skills."

It's not unusual for hospital CEOs to get the kind of compensation and perks that Multicare pays. Eight hospital systems in our region reported paying membership dues for their executives at clubs like the Columbia Tower Club and the Kitsap Golf and Country Club.

Providence and Multicare also send their leaders, and their spouses, to conferences. Multicare sent its CEO, board members, and their spouses to Estes Park, Colorado, for a conference. The resort town is just outside Rocky Mountain National Park.

Folsom: "Taking spouses to Colorado, it's very important in this kind of a business that spouses of either board members or for that matter the CEO have some knowledge of the business this is in terms of complexity, and so we think it's very important."

Ness: "I have a really poor reaction to that. It's making my stomach just twist."

Sharon Ness is a nurse. She works for the United Food and Commercial Workers Union.

She's currently negotiating a contract for the nurses at Multicare's Mary Bridge Children's Hospital. She says she had no idea that Multicare paid country–club dues for its CEO, Diane Cecchettini.

Ness: "I think that's kind of ridiculous. Maybe that's where they need to do their networking. But at that salary, she should be able to pay her own country club fees. That makes me really angry, and I will use that information at negotiations."

Hospital executives have whole categories of compensation you may never have heard of. With colorful names like "top hat" retirement plans and "golden handcuffs."

Then there's the "tax gross–up." That's when an employer adds enough to a benefit to cover the income tax the employee would have paid on it, too. Executives of four nonprofit hospitals got those in 2008.

C.J. Bolster is a compensation consultant with the Hay Group. It's a global management consulting firm based in Philadelphia. Bolster says nonprofit hospitals have been trimming their executive perks for the past five years.

Bolster: "We've seen them basically go away. Whether those were cars or country clubs, or a variety of other kinds of things, we've seen a general decline. I think it was in anticipation, partly in anticipation, of additional scrutiny."

Bolster says hospital boards nationwide are concerned about public perception of executive pay. But they're torn.

Bolster: "The concern of scrutiny has to be balanced with the ability to attract and retain the kind of management talent that has led to the success of many of these organizations."

The IRS requires nonprofits to check off whether they provide any of eight categories of perks. I asked hospitals in our region for more details. Who got those perks and how much? To their credit, every hospital system I contacted, except one, answered my questions. Providence Health and Services declined to reveal the details of its perks.

Providence is a multibillion–dollar nonprofit based in Renton. It operates 27 hospitals in five states. It's also a Catholic ministry. The chair of the board is a nun, Sister Lucille Dean of the Sisters of Providence. The health system would not let me interview her. It also declined my request to interview CEO John Koster. He earned $2.4 million in 2008. I got to speak with chief human resources officer Cindra Syverson. She says Providence's approach to compensation is simple.

Syverson: "We will pay at the median of market for executive compensation. It's the same for any level employee."

Ryan: "Are you looking only at other nonprofits or do you look at for–profits or government entities as well?"

Syverson: "All. All of the above. There was a time in the marketplace where there were differences between not–for–profit and for–profit. They merged, probably I would say, five to seven years ago. There is really no difference between for–profit health care and not–for–profit health care in general."

Ryan: "Your website says that Providence advocates for greater social justice, and it says you seek simplicity in your lives and in your work. So, I wonder if seven–figure incomes, you know, $2 million for your CEO, if you see those kinds of compensation aligning with those statements, with those values."

Syverson: "So our mission is to reveal God's love and care for the poor, especially for the poor and vulnerable, through our compassionate care. To be able to do that, we need to make sure that we can attract and retain the best talent. So, yes, we need to make sure that we're paying at least market for any of our employees that serve."

One Providence employee has a different perspective.

Ellis: "My name is Desmond Ellis, and I am a housekeeper at Providence St. Peter Hospital in Olympia."

Ellis works on call, he says about four days a week on average.

Ellis: "It means I don't have guaranteed hours, or sick time or vacation time or whatever that is, or any benefits."

Ellis says he has no complaints about his $14–an–hour wage. But he says he can't afford to go to a doctor. So he uses the free charity care that hospitals are required to give to anyone who can't afford health care.

Ellis: "I mean, here we are, the biggest provider of charity care in the city, and their own workers are their charity care."

Unlike Desmond Ellis, full–time housekeepers at Providence St. Pete do get health benefits. Ellis and other union members at the hospital went on strike last year to protect health benefits for their dependents. And they won.

Ellis: "Our hospital made $22 million in profits in 2009. To turn around and say you guys have to pay for your own health insurance is asinine, I thought."

Providence officials say the organization has made sweeping cost–cutting measures in the past couple of years, reaching all the way to the executive suites. Executives' pay was frozen for a year, and their retirement benefits were cut 10 percent.

If you want to see the full list of the region's highest–paid hospital employees — and their perks — we've got it at kuow.org. I'm John Ryan, KUOW News.

© Copyright 2010, KUOW

12.10.18

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