The size of chief executive officers' paychecks has always been a lightning rod for widely divergent opinions. And healthcare compensation has been especially highly charged of late as the industry struggles with soaring costs, growing numbers of uninsured patients, concerns about quality and seemingly intractable workforce shortages.
When it comes to how the top executives of healthcare trade associations are compensated, their constituents typically contend that you get what you pay for. So if these healthcare organizations are looking for top-tier talent and lobbying savvy to navigate the stormy waters of a complex industry, they say these executives are well worth the money.
Consumer groups, meanwhile, look at the industry's price spiral, access issues, medical errors and operational troubles and wonder why these executives are being rewarded at these levels. And in many cases-half of those that Modern Healthcare examined for 2002-the top executives aren't even presiding over organizations operating in the black.
Who tops the list?
Scott Serota, president and CEO of the Blue Cross and Blue Shield Association, holds the top spot on this year's list. He earned $1.31 million in 2002, making him the highest-paid chief executive of the 30 healthcare trade associations the magazine reviewed.
Two other executives also placed above the $1 million mark in total compensation for 2002. Richard Davidson, president of the American Hospital Association, earned $1.16 million, making him the second-highest-paid association chief. Kenneth Raske, president of the Greater New York Hospital Association, earned $1.02 million.
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 2002 and 2001 tax years, although the associations' fiscal years vary.
The figures used in the report include annual base compensation as well as perquisites, such as contributions to employee benefit plans and expense account allowances. For some executives, expense accounts and other benefits boosted overall compensation by hundreds of thousands of dollars.
For example, Davidson's overall compensation included $268,386 in benefit plans and $112,516 in expense allowance, while Raske's package included $163,875 in employee benefits. Serota, who declined to comment on his compensation, had about $11,000 in expense allowances, and Raske didn't have any.
Karen Ignagni, who led the American Association of Health Plans and earned $1.04 million in 2001, saw her overall compensation drop to $794,361 in 2002. While her base compensation increased, the amount of her employee benefits declined from 2001 to 2002. The AAHP and the Health Insurance Association of America announced in September 2003 that the two associations would merge. The group is now called America's Health Insurance Plans. Ignagni is president and CEO.
Annual averages for the executives are not directly comparable because of various job changes and partial-year salaries. The analysis of 2002 compensation also includes five additional association chiefs. National groups and large state associations that were added to the list for the first time are: the National Association of Children's Hospitals and Related Institutions; National Association of Psychiatric Health Systems; National Center for Healthcare Leadership; and the Florida and Illinois hospital associations.
They work hard for the money
With the responsibility of lobbying for changes in healthcare policy, ranging from Medicare reform to changes in medical malpractice liability, board members and compensation consultants say leaders of associations that represent hospitals, health plans and physicians have challenging jobs that come with high price tags.
At the AHA, for example, Davidson's "responsibilities are enormous" in trying to craft healthcare policy at the federal level, says Dennis Barry, president of Moses Cone Health System, Greensboro, N.C., and the immediate past chairman of the AHA's board of trustees. For his leadership and advocacy efforts, Barry says Davidson is compensated fairly for his responsibilities.
Davidson is in a "pivotal position" to provide leadership for the AHA and its members, Barry says. "There is a long list of things the AHA has done that will improve the healthcare field. That is what is really at stake."
Davidson's compensation is determined after the AHA board meets with compensation consultants who compare salaries at other national healthcare associations, healthcare providers and similar executive positions. "They put together what they think is a composite of executive salaries," Barry says. "The base compensation is very much in keeping with the group."
Spencer Foreman, president and CEO of Montefiore Medical Center, New York, and a GNYHA board member, helps determine Raske's compensation. Raske declined to comment, but Foreman defended Raske's million-dollar salary.
"From our standpoint, he has been an exemplary leader," Foreman says. "His salary reflects the high esteem in which he is held."
During his tenure, Raske has built group purchasing and drug vending organizations and is a leader in political and business strategies, Foreman says (March 22, p. 6). The board measures Raske's performance by evaluating his lobbying results and the benefits hospitals receive, Foreman says. "We measure the progress he has made in meeting the association's goals," he says.
Foreman says his association looks at other large healthcare organizations such as the AHA in determining Raske's salary and benefits, a move that compensation experts say is critical when associations are determining equitable levels of compensation.
A valuable commodity
"In order to have credibility with their peers, (executives) have to be at that level of compensation," says Tom Giella, national practice leader of healthcare services at executive recruitment firm Korn/Ferry International. "These jobs are very critical in the industry, particularly from a lobbying standpoint."
"When you look at the role they play, it's huge," Giella says. "When you look at the magnitude of their jobs, they are valued for what they do."
Association members also say they are comfortable with the compensation levels because the top executives work tirelessly to lobby legislators on healthcare reform and for their organizations' other priorities.
"If you want talent, you have to pay for it," says Bill Gordon, CEO at Barton Healthcare System, South Lake Tahoe, Calif., a member of the California Healthcare Association.
C. Duane Dauner, president of the CHA, earned $618,710 in 2002. That compares with $1.3 million in 2001, $760,000 of which was deferred compensation.
Dauner's reputation as a tireless lobbyist impresses Gordon, who says the CEO has built a relationship with California legislators that has paid off as lawmakers have spared hospitals from large funding cuts.
"California's economy and the state government are in the tank," Gordon says. "He and his staff have been able to minimize cuts by state government. He is incredibly talented in getting their attention. He makes our voices heard."
The price demands more
Meanwhile, critics say healthcare associations are not effective enough for the amount of compensation paid to top executives. Healthcare consumers have less access to care and are paying more for services, while hospitals, insurers, physicians and nurses have voiced complaints over the course of healthcare, says Charles Inlander, president of the People's Medical Society, a not-for-profit consumer group.
"That says to me the associations aren't doing the job," Inlander says. "The boards have to look at what they want and what is (needed to) improve healthcare. That is not happening."
Healthcare trade associations and the executives in charge have failed to look at what is best for the consumer, Inlander says. "There is a great void in leadership," he says. "I certainly don't think the money is warranted."
The compensation of an executive often did not correlate with his or her association's financial performance. Of the 29 organizations that had completed the tax filings, 15 reported a loss for their fiscal years and 14 came out in the black.
The Blues association had the largest profit, reporting net income of $8.2 million on total revenue of $221.4 million, a profit margin of 3.7%. The American Medical Association followed, reporting net income of $3 million on total revenue of $215 million, a margin of about 1.4%.
Only two other associations reported profits of more than $1 million. The Medical Group Management Association reported net income of $1.8 million on total revenue of $22.4 million, an 8% profit margin, while the National Association of Children's Hospitals and Related Institutions reported net income of $1.02 million. Revenue figures were unavailable.
Nine associations reported losses of $1 million or more, according to the filings. The Association of American Medical Colleges, which paid Jordan Cohen total compensation of $896,836, suffered the biggest loss, with a deficit of $11.4 million on total revenue of $47.5 million.
The AAMC was followed by the American College of Surgeons, which reported a $3.7 million loss, and the American Health Care Association, which had a deficit of $3.1 million.View salary listing.