A slumping economy didn't seem to hurt the pockets of many chief executives who run healthcare trade associations, as they saw their collective annual compensation grow steadily in 2001.
E. Ratcliffe Anderson Jr., the former top executive of the American Medical Association who was sacked in June 2001 after filing a breach-of-contract lawsuit against his employer, earned $1.2 million in 2001, making him the highest-paid chief executive of 25 healthcare trade associations reviewed by Modern Healthcare.
One other executive cracked the $1 million mark in 2001 in total compensation. Karen Ignagni, who heads the American Association of Health Plans, earned $1.04 million, making her the second-highest-paid association chief.
These figures include annual base compensation and additional perquisites such as contributions to employee benefit plans and expense account allowances, which in some cases add hundreds of thousands of dollars to an executive's total compensation package.
Anderson supplanted Scott Serota, chief executive of the Blue Cross and Blue Shield Association, who was No. 1 in Modern Healthcare's 2002 ranking of healthcare association executive pay. Serota was one of three executives who broke the $900,000 mark in 2001 but fell short of $1 million, with compensation of $941,180.
The other executives in that elite group were Richard Davidson, president of the American Hospital Association, who brought home $957,708, and Kenneth Raske, president of the Greater New York Hospital Association, who earned $944,030.
In 2001, the chief executives of major healthcare associations earned an average annual overall compensation of $538,839, a 14% increase compared with an average of $471,316 in 2000, according to Modern Healthcare's analysis of the tax returns from the not-for-profit industry trade groups. One organization, the Chicago-based American College of Surgeons, was left out of this calculation because it changed its fiscal year in 2001 and didn't report full-year compensation for its executives.
Value for the money
Association members say they believe the executives who are in charge of lobbying for more money and less regulation are earning their keep while representing hospitals, health plans, physicians and other healthcare groups. Balancing the interests of their boards of directors with concerns of members is a difficult and demanding job, they say.
"Associations ought to run like associations, which means you have to hire the appropriate manager," says Cathy Holmgren, executive director of the Illinois Nurses Association, a constituent of the American Nurses Association. "In order to do that, you have to pay market value. You have to pay accordingly."
Linda Stierle, chief executive officer of the ANA, earned $274,181, according to the tax return. A former brigadier general with the U.S. Air Force who held several clinical and management positions, Stierle joined the association in 2000.
Executives at MVP Health Care, a Schenectady, N.Y.-based managed-care organization, which belongs to the AAHP, say they are pleased with the benefits they receive through their association. For example, the AAHP has conducted research and answered questions about implementing the Health Insurance Portability and Accountability Act of 1996, says Gary Hughes, associate director of public relations at MVP. "Generally we think we are getting our money's worth," Hughes says.
Associations must pay chief executives competitive salaries to maintain credibility among peers, says Tom Giella, national practice leader of healthcare services at recruiter Korn/Ferry International. In Ignagni's case, Giella says she leads an association that has for-profit and not-for-profit members, including large and powerful companies, such as Cigna Corp. and Aetna. The $1 million compensation package gives her credibility among her members, he says. "She is very well-connected," Giella says. "She has earned her stripes."
Executives earn their salaries by doing more than just balancing budgets and working with constituents, Giella says. At many associations, executives are tackling healthcare issues, such as tort reform and lowering malpractice premiums, he says.
"To get the best and brightest out there, you have to pay top dollar," Giella says. "Some of the decisions move the entire industry. There is a lot at stake."
Building relationships with key legislators and policymakers also is a top requirement for the job that many people do not realize, says Sandy Williams, a former senior vice president of the AHA who is currently a vice president with Witt/Kieffer, an Oak Brook, Ill.-based executive search firm.
Executive salaries "should mirror the midpoint of members' salaries," Williams says. "These organizations are more complicated and require a good deal of skill than most people give them credit for."
Others question whether the executives provide enough value for their associations to merit their six- or seven-figure salaries.
Sidney Wolfe, director of Public Citizen's health research group, says he believes the money used to pay executives' salaries should be earmarked for other uses in the healthcare industry, such as educational programs and salaries for employees.
"There are a lot of things hurting in the hospital industry; one thing that is not is the CEOs' salaries," Wolfe says. "The public is paying for these bloated salaries through insurance, taxes and hospital bills. It is disgraceful. Many of these organizations are doing things not in the public interest, but against the public interest."
Charles Inlander, president of the People's Medical Society, an Allentown, Pa.-based not-for-profit consumer group, also questions the executives' track records. In some cases, executives have fought for lower malpractice premiums and higher Medicaid reimbursements but have been unsuccessful, he says.
"Those kinds of salaries-you are talking excess for what these people do," Inlander says. "It's disgusting."
The salary levels will continue at this level until association members do something, he says. Inlander suggests the hiring of lesser-paid executives who might be hungrier to provide better service to members.
"These associations didn't get started with people making this much," he says. "The only way it changes is when the members wake up and see they are not getting value."
No shortage of red ink
Of the 25 associations for which Modern Healthcare reviewed tax returns, 15 lost money in their most recent fiscal year, and 10 were profitable. Many associations have blamed a decline in investment income for faltering earnings.
The most profitable association was the Blue Cross and Blue Shield Association, which reported net income of $13.2 million on total revenue of $238.1 million.
The Joint Commission on Accreditation of Healthcare Organizations was the second most-profitable association, reporting net income of $9.5 million on revenue of $99.4 million. When combined with the financials of its Joint Commission Resources subsidiary, the JCAHO had net income of $14.3 million on revenue of $115.2 million in 2001 (Oct. 14, 2002, p. 8).
Six associations lost $1 million or more in 2001, according to the tax returns. The biggest deficit was reported by the Health Insurance Association of America, which lost $2.9 million, followed by the Catholic Health Association and the Association of American Medical Colleges, which both reported $1.9 million losses.
The AAHP, which represents more than 1,000 HMOs, PPOs and other health plans and paid Ignagni just more than $1 million, reported a loss of $1.3 million on $30.3 million of total revenue, according to the tax return. The association reported a 29% increase in membership dues, to $15.9 million compared with $12.3 million in 2000.
To compile the list of association executive salaries, Modern Healthcare reviewed the publicly available Internal Revenue Service filings called Form 990 for the leading not-for-profit healthcare associations. The organizations' IRS filings were for the 2001 tax year, or the most recent available, although the associations' fiscal years vary.
The circle of association chiefs did see change as some executives switched jobs. Anderson, who was hired in 1998 to lead the AMA, was fired in June 2001 after filing a $5 million breach-of-contract lawsuit against the association. Michael Maves, who had been president of the Consumer Healthcare Products Association, succeeded Anderson in early 2002.
At the Texas Hospital Association, which represents 430 hospitals, Richard Bettis was named to the top post in 2001, replacing Terry Townsend. In late 2001, the HIAA named Donald Young as its president, replacing Chip Kahn, who left to head the Federation of American Hospitals, which represents for-profit hospitals and healthcare systems.
Some associations change leadership regularly while others see their top executives hold their titles-and top-paying jobs-for many years. For example, Dennis O'Leary, president of the JCAHO, has led the Oakbrook Terrace, Ill.-based association for 16 years, and Richard Davidson has been at the helm of the AHA since 1991.
It takes time on the job to build relationships with legislators and policymakers, Williams says. Long tenures in the executive suite ultimately lead to higher salaries. "There are complexities to the jobs and premiums on longevity," Williams says. "All of those things combine for an upward pressure on salaries."
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