It pays to manage a not-for-profit healthcare trade association. In fact, it pays very, very well.
Executives at five prominent associations raked in more than $740,000 each in total compensation in 1997, according to the groups' annual filings with the Internal Revenue Service.
MODERN HEALTHCARE reviewed the IRS filings, called Forms 990, from 34 leading not-for-profit healthcare organizations. Most of the groups surveyed were trade associations representing providers to, insurers of or suppliers to the $1 trillion healthcare industry.
The organizations' IRS filings were the most recent available, for the 1997 or 1996 tax years, although the associations' fiscal years vary.
According to the filings, the five executives with the biggest 1997 total compensation packages were:
* John Curley Jr., the now-retired chief executive officer at the St. Louis-based Catholic Health Association, who received total compensation of $1,078,838.
The vast majority of Curley's compensation-$658,621-was from a deferred compensation plan he cashed in when he retired last year at age 62.
* Bill Gradison, president of the Washington-based Health Insurance Association of America, whose total compensation was $784,819. Gradison, a former Republican congressman from Ohio, left the organization in 1998.
* Richard Davidson, president of the Chicago-based American Hospital Association, with total compensation of $765,262.
* Thomas Scully, president of the Little Rock, Ark.-based Federation of American Health Systems, with total compensation of $755,104.
Scully benefited from an annuity the federation transferred to him in 1997, says Laura Thevenot, the group's chief operating officer. The federation bought the annuity for Scully, who joined the federation in 1995, as a reward for two years of service. Thevenot says Scully's annual base salary is $375,000.
* Patrick Hays, president and CEO of the Chicago-based Blue Cross and Blue Shield Association, with total compensation of $742,784.
Annual total compensation includes compensation, benefit contributions, and expenses or other allowances. For some top executives, such as Curley and Scully, year-end totals were inflated by one-time payouts earned in prior years.
A new study by the Washington-based American Society of Association Executives found that of 52 CEOs, the average total compensation for a healthcare trade association top executive in 1998 was $160,581. Total compensation includes base salary, other cash compensation and employer-provided deferred compensation.
Jim Freundt, a compensation expert with Hewitt Associates, a human resources consulting firm in Lincolnshire, Ill., says the employment market drives compensation for association executives.
In healthcare, leadership talent can be drawn from medicine, law or lobbying. "What kind of background talents you're looking for determines where you're going to find this person and the pay as well," Freundt says. A physician who has a private practice, for example, pays a cost to give up that practice.
Paying what it takes. "The rationale would be: What do we need to pay to attract the type of person with the background we think we need to run this association?" Freundt says.
"That doesn't mean the number can't raise eyebrows," he adds. "Oftentimes, it does."
Once the executive comes aboard, the compensation questions don't go away. The association has to look continually at similar hiring markets to make sure the pay remains competitive, Freundt says.
Hiring association executives can be a little trickier than the usual executive search, Freundt says. If the person is older and doesn't have a lengthy career left in which to accumulate a full retirement benefit, an association may include a special retirement package. Similarly, there might be a negotiated severance benefit. "Those can be large dollars," he says.
John Lloyd, vice chairman of Witt/Kieffer Ford, Hadelman & Lloyd, an executive search firm in Oak Brook, Ill., says that a large organization of member organizations, such as the AHA or the Blues association, requires "an executive of the caliber of (those on) your board. You didn't have someone who's just a functionary-arranging meetings, putting out press releases." These executives need to be paid at the level of those who dominate the board-such as the AHA's leaders at BJC Health System in St. Louis or Legacy Health System in Portland, Ore.-not at the average level of all 5,000 hospital administrators.
Furthermore, the job description today is much more encompassing than it was one or two generations ago, Lloyd points out. The person has to create the organization's vision as well as provide its leadership.
"My father became a healthcare trade association executive in 1957," Lloyd recalls. "His title was executive secretary to the Missouri Hospital Association. His job was to put out a newsletter, put on a convention and carry out the legislative agenda set by the board.
"If you talk to a state hospital association CEO now, he'll tell you, 'It's my job to come up with the legislative agenda.' We've gone from someone who's a secretary to (someone who's) a CEO. (Associations) want a leader, someone who creates a vision, as opposed to standing there and taking orders, and we have to pay them for it."
Form follows function. The Form 990 allows the public to keep tabs on how tax-exempt organizations dole out their money. An IRS spokeswoman said the agency has been requiring Forms 990 since 1942. But some of these organizations don't make it easy to get photocopies of the form.
Disclosure should ease with new regulations expected from the IRS in coming weeks. The regulations will become final 60 days after they are published in the Federal Register, says James McGovern, a principal with KPMG in Washington.
"The scrutiny of these returns is going to be greater than it ever has been," McGovern says.
Among the biggest changes in the proposed rules is that tax-exempt organizations must provide copies of their filings promptly if requests are made in person, or within 30 days if they are made in writing, McGovern says.
Organizations now must make their filings available for public inspection at their headquarters, but they aren't required to provide copies, he says.
Organizations that don't comply with the new public inspection rules can be hit with fines as high as $10,000, McGovern says.
Most of the organizations MODERN HEALTHCARE contacted for this survey cooperated. They were asked to provide a full copy of the form, including attachments, by mail.
The American Medical Association declined to give MODERN HEALTHCARE a copy. Instead, it allowed a review of its 1997 IRS filing at its Chicago headquarters.
Jane Tuma, the AMA's director of taxation and real estate investments, said the association gets so many requests to see its 990 that it sticks to a uniform policy.
The American Red Cross publishes its tax return on its World Wide Web site but doesn't include details such as executive compensation.
Its 1996 Form 990 is posted on its Web site; the organization faxed its most recent filing, the 1997 form, to MODERN HEALTHCARE at the magazine's request.
Tax attorney Thomas Hyatt of Ober Kaler Grimes & Shriver in Washington supports the beefed-up public disclosure requirements.
"I think (they) will put some pressure on those who haven't already gotten the message that the Form 990 is a public record document," Hyatt says.
The new requirements could also be seen as positive for organizations.
"This provides an opportunity for organizations to tell their story to the world," McGovern says. Indeed, the documents offer a banquet of information about organizational missions, programs, personnel and spending.
Top executives at some healthcare trade associations are better compensated than many of the constituents they represent.
For example, while the AHA paid Davidson more than $765,000 in total compensation, the median total compensation for a CEO at a hospital-based integrated delivery system was $336,700, according to the most recent survey by Hewitt.
Fred Brown, AHA board chairman, defends Davidson's pay.
"It's a fair wage, and it reflects the talents of Dick," says Brown, former president and CEO at BJC Health System. "Everywhere you go, people say Dick is the right person for the job at the right time."
The AMA paid $472,273 in 1997 to P. John Seward, M.D., its former executive vice president. That was more than twice the average $199,000 net income of physicians in 1996, according to AMA data.
Overall, the median income for doctors in 1996 was $166,000. Employed physicians averaged a $142,000 annual salary, while self-employed doctors averaged $198,000 (March 30, 1998, p. 3). The AMA said income figures for 1997 are not yet available.
Seward's total compensation covered the period from Jan. 1, 1997, to Dec. 4, 1997. He resigned in December after approving a controversial product endorsement deal between Sunbeam Corp. and the AMA.
But not all association executives are in the same ballpark as their constituents in regards to compensation.
Karen Ignagni, president of the Washington-based American Association of Health Plans, received $416,965 in 1997.
That same year, the average annual compensation for 25 of the highest-paid executives at 15 large for-profit managed-care companies was $5.1 million, according to a report released last year by the Washington-based consumer group Families USA. In many cases compensation for the for-profit executives included exercised stock options.
The Families USA report, based on the companies' filings with the Securities and Exchange Commission, crowned Stephen Wiggins, the former chairman and CEO of struggling Oxford Health Plans, as the highest-paid executive in 1997.
Wiggins, who resigned in August 1997 as CEO of Norwalk, Conn.-based Oxford, had 1997 compensation of $30.7 million. Only $623,077 of that came from salary, and the rest was from options Wiggins exercised.
John Page, executive director of the Chicago-based Healthcare Information and Management Systems Society, was paid a total of $189,034 in fiscal 1997. The median total compensation for chief information officers at integrated delivery systems was $125,200 in January 1998, according to the Hewitt survey. The mean average was $131,800.
-With Ron Shinkman
and Shannon Seta