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Hospital Executive Pay Under State Scrutiny

John Ryan

Hospitals in Washington state receive millions in tax breaks from the state government. KUOW has learned that some hospitals are paying their executives so much that the hospitals may no longer qualify for one of their biggest tax breaks. As state tax collectors and legislators begin to examine the issue, tens of millions of dollars could be at stake. John Ryan brings us this KUOW investigation.


Most of Washington's largest hospitals are nonprofit organizations. The state gives the nonprofits a break on their business taxes to help reduce the cost of health care.

The hospitals have to jump through some hoops to qualify for the reduced taxes. For one thing, state law limits how much the hospitals can pay their executives. Their pay has to be comparable to what public servants in Washington make in similar jobs — or else no break on their B&O taxes.

KUOW has learned that 15 hospital executives in Washington made $1 million or more in 2009. That elite group includes 14 nonprofit executives and one head of a government hospital. CEOs at Multicare, Providence, Virginia Mason and Valley Medical each made more than $2 million.

Those numbers can be found in the hospitals' latest tax filings and other public records. The pattern was more lopsided in the two prior years. Nobody working at a public hospital cracked the top 10 list of the state's highest hospital paychecks in 2007 or 2008.

The limit on executive pay has been on the law books for 30 years.

Gowrylow: "Frankly, I don't think it's something that's been on our radar since the mid–80s."

Mike Gowrylow is a spokesman for the Washington Department of Revenue. He says the recent million–dollar incomes were news to the department.

Gowrylow: "But it's certainly something that I think we need to take a look at again and examine whether these nonprofits are paying their executives excessively or not."

Gowrylow says the agency only audits 2 or 3 percent of tax returns. It mostly relies on businesses to comply voluntarily with the state's tax laws.

Gowrylow: "We can't be everywhere. If we become aware of a nonprofit or any other business that's underreporting their taxes, we investigate those complaints, and if tax is due, we will assess it."

He says the agency can recover back taxes for the past four years, along with penalties and interest.

But the last time the state tried to penalize a nonprofit for paying its executives too much, it didn't go so well for the state.

The year was 1986.

The Department of Revenue wanted to ding Group Health Cooperative for paying too much to its executives. They argued all the way to the state Supreme Court.

Group Health's expert witness testified that the executives weren't overpaid when compared to executives at a variety of government institutions. He said the Group Health paychecks were within 5 or 10 percent of the middle of the market for comparable public–service executives.

The court sided with Group Health. The key question, then as now, is what exactly does "comparable" mean?

Several present–day hospital officials declined to be interviewed on tape. They told KUOW they believe they are in compliance with the state law. But they generally provided little detail to back up that claim.

Providence and Group Health representatives both said their organizations are so large and complex that there may not be any comparable public–service jobs in Washington.

Swedish spokeswoman Melissa Tizon told me that CEO Rodney Hochman's pay was generally comparable to what the highest–paid public–hospital executives made, at Valley and Evergreen hospitals.

State Senator Karen Keiser is chair of the Health and Long–Term Care Committee.

Keiser: "Something is out of line here."

Instead of comparing to just the state's highest executive incomes, Keiser says it would be better to measure nonprofit pay against paychecks closer to the middle of the market.

Keiser: "I draw your attention to the director of Harborview Hospital, the trauma center for the entire state."

Harborview is the state's largest hospital. Eileen Whalen is its head and an employee of the University of Washington. She makes about $470,000.

Keiser: "That's really not comparable to the million dollar and more salaries of other hospital directors in our state. We are paying attention here in Olympia to that."

Other executives at UW Medicine did make more than Whalen. Still, none of them, not even the president of UW, made as much as any of the 15 highest–paid executives at nonprofit hospitals in 2009.

I searched high and low to find any public officials making as much as the top nonprofit CEOs.

The only one I found who consistently did so was the UW football coach. But it might be hard to argue that Steve Sarkisian's job is comparable to running a hospital system.

Announcer: "Touchdown Washington!"

In 2009, one public executive did earn more than anyone else at a hospital in Washington. Valley Medical Center CEO Rich Roodman pulled down $2.6 million that year. Most of that sum was a retirement package he got to cash in early, in exchange for not retiring.

That unusual deal drew a rebuke from the state auditor. And it led to the election of two of Roodman's critics to the board that oversees the hospital. Recent meetings of Valley's board of elected commissioners have been bitterly divided over executive pay.

The state senate's health committee is considering several bills that would increase state oversight of the ways hospitals spend their money.

After learning of KUOW's findings, committee chair Karen Keiser introduced a bill state senators Cheryl Pflug and Karen Keiser co–sponsored a bill that would require nonprofit hospitals to publish their top executives' incomes each year. They'd also have to provide proof to tax collectors that the paychecks aren't out of line with comparable pay in the public sector.

I'm John Ryan, KUOW News.

© Copyright 2011, KUOW

[Ed.: Transcript has been edited and differs from the original broadcast version. Senator Cheryl Pflug, not Senator Karen Keiser, introduced Senate Bill 5666. (2/11/2011)]