If it's a big job to run healthcare trade associations, the salaries of their chief executives show it. Those who head many of the nation's healthcare advocacy groups earned more money in 2000 than the president of the United States-in some cases, a lot more.
Scott Serota, who runs the Chicago-based Blue Cross and Blue Shield Association, was paid a base salary of $739,235 in 2000, making him the highest-paid chief executive of 20 healthcare trade associations reviewed by Modern Healthcare.
American Hospital Association President Richard Davidson came in second in the tally, having earned $718,232 in 2000. Those figures represent annual base compensation and do not include additional compensation such as contributions to employee benefit plans and expense account allowances, which can add hundreds of thousands of dollars to an executive's total annual compensation package.
For example, those perquisites pushed Serota's total compensation to $746,346 in 2000 and Davidson's to $951,352.
In 2000, the chief executives of major healthcare associations earned an average annual base compensation of $399,062, compared with an average of $362,472 in 1999, according to Modern Healthcare's analysis of the tax returns of 20 not-for-profit industry trade groups. By comparison, the president of the United States earned $250,000 in salary and expenses in 2000; his compensation since has been increased to $400,000.
Primarily charged with the often-difficult task of lobbying for more money and less regulation, the associations that represent hospitals, health plans and physicians say they need leaders who are knowledgeable insiders, effective advocates and charismatic cheerleaders. Getting those people can cost a lot of cash, say their board members and compensation consultants.
The American Hospital Association, for example, "is a very large and complicated organization, and its success is based on the kind of talent it attracts," said Gary Mecklenburg, president and chief executive officer of Northwestern Memorial HealthCare in Chicago and last year's AHA board chairman.
In 2000, association CEOs across all industries earned a median salary of $115,024, according to the American Society of Association Executives in Washington. About 15% of CEOs included in the ASAE survey were from healthcare or medical associations.
Although the ASAE's salary figures seem low compared with what healthcare association executives earn, some of the disparity could be because of the size of the associations, said Chris Vest, an ASAE spokesman. "The average association has about nine people on staff and a budget of well under $1 million. When you have hundreds of people on staff and a $25 million budget, your CEO is going to make a considerably larger amount."
The salaries of healthcare association executives did not surprise industry headhunters, who said such executives require a skill mix that can be tough to find and expensive to keep. Senior association officials need to be industry experts and know how to influence members over whom they have no control or authority, said Tom Giella, national healthcare services practice leader for recruiting giant Korn/Ferry International, based in Los Angeles.
"Because these positions are very difficult political positions, I think (healthcare association presidents) deserve what they get," Giella said. "To find the right executive to represent members and constituents requires more and more skill and art."
Once they've landed their coveted jobs, many association executives find their perches in the industry hard to give up-the AHA's Davidson has been on the job more than 10 years, and the Joint Commission on Accreditation of Healthcare Organizations President Dennis O'Leary for 15 years. However, some do make a move for other high-profile leadership roles. Last May, Thomas Scully left the Federation of American Hospitals to become the new administrator of the Centers for Medicare and Medicaid Services, and his replacement, Chip Kahn, moved from the Health Insurance Association of America. Meanwhile, some associations with a more volatile membership turn over their executives constantly; the American Medical Association has had four leaders in the past six years.
Association members contacted by Modern Healthcare expressed satisfaction with the services their trade groups provide. Most also said the executives who run those associations seem to be fairly compensated based on their responsibilities.
Still, whether the associations provide enough value to justify their executives' paychecks is debatable.
"I think in recent years (many) of the major trade associations for healthcare have not been very effective," said Charles Inlander, president of the People's Medical Society, an Allentown, Pa.-based consumer advocacy group. If association members are willing to pay executive salaries that approach seven figures, Inlander said, "more power to them. I just don't think that oftentimes members are getting what they're paying for."
In fact, some associations go to great lengths to remind members what they get for their money. Last month, the AHA's weekly newsletter included an eight-page "special report" highlighting the association's recent accomplishments and describing its political priorities. In its weekly newsletter, the AMA features a twice-monthly column called "AMA For You" that informs members of recent AMA initiatives and achievements.
To compile the list of association executive salaries (See chart, this page), Modern Healthcare reviewed the publicly available Internal Revenue Service filings called Form 990 from leading not-for-profit healthcare associations. The organizations' IRS filings were for the 2000 and 1999 tax years, the most recent available, although the associations' fiscal years vary.
Of the 20 associations for which Modern Healthcare reviewed tax returns, 15 were profitable in their most recent fiscal year, and five lost money. The AMA was the most profitable, according to the tax returns, with net income of $14.7 million on total revenue of $245.9 million in 2000. The American Nurses Association, meanwhile, lost $3.2 million on revenue of $20.6 million that year, the largest loss among the associations surveyed. ANA CEO Linda Stierle earned $174,715 in 2000 but was in the job only six months of that year.
Many associations have cited a decline in investment income-precipitated by the faltering stock market and the economic aftermath of Sept. 11-as a major factor in reducing earnings or producing outright losses.
The value of the Catholic Health Association's long-term investments, for instance, decreased $2.6 million in 2000 after a $4.4 million increase in 1999. The CHA posted a net loss of $656,559 in 2000 on total revenue of $15.3 million, compared with a profit of $2.97 million on revenue of $17.7 million in 1999, according to its tax returns.
The same year that the CHA went into the red, the Rev. Michael Place, the association's president and CEO, received a 26% increase in his total compensation, bringing his annual salary to $529,288, which does not include $22,614 in contributions to his employee benefit plan and a $14,481 expense allowance. The CHA did not increase dues during that period, said Place, who donates about 10% of his annual salary to the Roman Catholic Church.
"After three years in my position, (the CHA's board) said I was far below the marketbasket and needed to catch up to where I should be," Place said. "That was done for the entire executive team."
In 2000, the CHA took in $13.5 million in membership dues revenue, an 8% increase over 1999 when it took in $12.5 million.
Concerning its success in the legislative arena, the CHA is "representing us quite well in Washington," said Charles Francis, senior vice president of strategy and business development at 48-hospital Catholic Healthcare West in San Francisco. As for Place's salary, Francis said, "I trust the CHA board of directors' ability to determine a compensation structure that's appropriate for the job, given the challenges (Place) faces."
The highest-paid association executive in Modern Healthcare's survey, the Blues' Serota, said his 2000 salary of nearly $740,000 was justified because his company's "radically different financial structure" distinguishes it from most other associations. As a contractor of the federal government's employee health benefit program, for example, the Blues association receives business revenue that other associations don't.
"We are a different animal," Serota said. "As a result, the board feels my compensation is appropriate."
From one member's perspective, the Blues association-which posted a 2000 profit of $3.2 million on revenue of $228 million after a 1999 loss of $777,823 on revenue of $212 million-does a good job and plays an important role in coordinating communication and strategy among Blues plans.
"We're absolutely getting value from the organization," said Mary Prentnieks, director of federal relations and senior policy counsel at Blue Cross and Blue Shield of Minnesota, which has 1.2 million members. "They're on the line for all the decisionmaking that goes on, which is a tremendous role and responsibility."
Three of the highest-paid association executives work at organizations that represent health insurers. And those groups have blocked a federal patients' bill of rights for the past six years.
Most hospitals and health systems contacted by Modern Healthcare are represented by the AHA, and in some cases by other groups such as the federation and the CHA. The degree to which those organizations translate dues into industry-friendly legislation is a standard barometer of performance. Following aggressive lobbying, for instance, many of the groups included in Modern Healthcare's survey won two consecutive years of relief from the Balanced Budget Act of 1997.
"The AHA has the near-impossible job of representing a very diverse constituency that often has common and conflicting interests," said Joe Morris, CEO of 250-bed Kootenai Medical Center in Coeur d'Alene, Idaho. "Given that, I think they do a great job."
In 2000, the AHA collected $52.93 million in dues, a 0.1% increase over 1999 when it collected $52.87 million, according to the association's Form 990. As for Davidson's substantial salary, "I would hope that the AHA has an executive committee that has developed a philosophy as to where they want compensation compared with similar organizations," Morris said.
According to AHA officials, they do have such a process in place and it is an "exhaustive" one that includes working with compensation consultants and assessing the organization's financial performance before salaries are set.
"It's probably one of the most comprehensive processes I've ever participated in for any executive," said former AHA Chairman Mecklenburg.
Even with that process in place, consumer advocates expressed concern about paying healthcare association executives large salaries when the industry they represent is struggling.
"I've always been appalled at these salaries," said Inlander. "The public knows these people are well-compensated hired guns ... they live royally and they act royally. The more you pay them does not mean you're getting that much more value."
It all depends on your perspective, however, noted one veteran hospital association executive. "How do you place a price on leadership?" asked Harlan Heald, who was president of the Nebraska Association of Hospitals and Health Systems for 15 years before he retired in 2000. "To somebody living in Afghanistan, we're all overpaid."