The following appeared first in Crain's New York Business.
Are two New Jersey boys worth $32 million?
Ronald del Mauro, the former president and chief executive of Barnabas Health, pulled in almost $22 million in 2012, the year after he retired from New Jersey's largest health system. Joseph Trunfio, president and chief executive at Atlantic Health, made $10 million.
Never before have such outsized compensation
packages appeared on Crain's annual list of top-paid hospital executives. They are a reflection of how large hospital systems increasingly are putting in place long-term incentive plans for their executives so that they stick around and have a financial reason to implement strategies that do not have a short-term payoff. Only 14% of big systems nationally had such incentive plans in place in 2006, but by 2013, nearly 40% did, according to the 2013 Hay Group Healthcare Compensation Study, released last November.
"We're seeing an uptick in the use of long-term incentives as healthcare organizations work to align incentive plan opportunities with longer-term desired outcomes," said Ron Seifert, vice president at Hay Group.
Mr. Del Mauro's riches hail from a rather sophisticated pot of gold: a $14 million distribution from a supplemental executive retirement plan; $4.5 million from a split-dollar life insurance policy; $2 million from vested benefits in a long-term incentive plan; and a plain old performance bonus worth $870,000. All figures on the list are from hospitals' 2012 tax forms.
A Barnabas Health spokeswoman said that Mr. Del Mauro had been with the $2.6 billion health system for more than 44 years, including 26 years as CEO.
"When Mr. Del Mauro began his career, Saint Barnabas Medical Center was a stand-alone community hospital," she said, adding that Barnabas is "well positioned both financially and operationally, despite significant industry challenges. His retirement package is a function of over four decades of service ... and reflects his exceptional legacy."
The biggest chunk of Mr. Trunfio's package was $8 million in deferred compensation, plus a base salary and bonus of $1.9 million.
In a statement, Karen Kessler, board chair of Atlantic Health System, said that while Mr. Trunfio's "current agreement does not have these bonus provisions, his compensation is performance-based, aligned with industry standards and intended to assure we retain top executive talent to provide the best quality of care to the communities we serve."
Pay special attention to that phrase "aligned with industry standards" because those standards have been undergoing a change in the past few years. Quality outcomes are increasingly important benchmarks in healthcare. At the same time, there is a shift in demand for hospital beds as more care is delivered in outpatient settings. And more often, insurers and hospitals are striking deals that financially reward providers for better outcomes and patient satisfaction, as well as lower costs.
Hospital executive compensation, however, has not been keeping up with those shifts. In a January article in the Journal of the American Medical Association Internal Medicine, researchers examined hospitals' 2008 performance based on financial, technology and quality metrics, among other measures. Then they took a look at chief-executive compensation in 2009.
Not surprisingly, they found no association between CEO pay and very important benchmarks, including a hospital's "margins, liquidity, capitalization, occupancy rates, mortality rates, readmission rates, or measures of community benefit."
Researchers found wide variation in what trustees chose to pay the CEOs of their not-for-profit hospitals. Compensation trends showed some correlation to how high-tech a hospital was, and whether it had solid patient satisfaction scores.
It isn't clear whether the mega-packages given to Mr. Del Mauro and Mr. Trunfio will drive compensation trends even higher or become outliers. Trustees normally base compensation on market practice. If they can demonstrate fair-market value relative to pay packages at competing hospitals, then they could escalate the trend.
There may well be more eight-figure compensation packages in future compensation series charts, which Crain's Health Pulse produces annually. Already, there is anecdotal evidence that salaries are creeping up. Based on 2011 compensation, the lowest-paid local CEO was No. 21 Robert Garrett, of Hackensack University Medical Center, who earned $1.7 million (and who ranked No. 16 this year with $2.3 million). This year, the lowest CEO salary was $1.7 million, earned by Audrey Meyers of Valley Hospital in Ridgewood, N.J.
Many of the names on this year's list have been here before. Some executives lead vast systems: NYU Langone Medical Center's Dr. Robert Grossman; New York-Presbyterian Hospital's Dr. Herbert Pardes and Dr. Steven Corwin; Montefiore Medical Center's Dr. Steven Safyer; and North Shore-LIJ's Michael Dowling
But what about the little guys?
Community hospitals abound on this year's list. The leaders of Westchester County's Lawrence Hospital, Phelps Memorial Hospital and White Plains Hospital earned big compensation packages, driven by retirement pay. One community hospital is a perennial on the list. Bronx-Lebanon Hospital Center's Miguel Fuentes Jr. has spent decades at his institution, and arguably needs no retention pay. His $1.8 million package includes about $200,000 in a supplemental retirement plan payment.