In 2010, times were getting tougher for Lancaster General Health.

The mammoth health care system would notch record revenues of nearly $1 billion that year. But its annual surplus fell for the fourth straight year. Though destitute by no means, galloping expenses and uncertainty in the marketplace were hammering LGH's business model, prompting changes. Two units were closed, some positions were eliminated, and 170 employees were reassigned.

Yet even as the bottom line eroded, there was little austerity in the executive suites. In 2010, each of 21 executives systemwide would earn total compensation — salary, bonuses and incentives, benefits and expenses — of at least $250,000, according to LGH's Internal Revenue Service Form 990, the annual financial report that nonprofit health systems such as LGH must file with the federal government.

• Click here for a searchable database of health system compensation in central Pa.

• Click here for a slideshow of the highest compensated executives at LGH

Two executives — CEO Tom Beeman, who was on military leave part of the year, and Executive Vice President Jan Bergen, who helped fill in for Beeman in his absence — earned more than $1 million in total compensation; another six got at least $500,000.

And those top 21 executives collectively received more than $2 million in bonuses and incentives.

The compensation may seem unusually high for what is, ultimately, a tax-exempt, charitable organization. But compensation at LGH is in line with other health systems throughout the region and the nation as a whole.

Top LGH officials say those compensation packages, and the number of executives collecting them, are sure to increase in coming years due to the fiscal challenges facing Lancaster General.

Across the country, more and more nonprofit health care executives are earning six- or seven-figure salaries, with bonuses and other benefits resembling pay packages commonly found in the for-profit, corporate world.

That compensation is one of many factors driving health care costs nationally, albeit a relatively minor one. Still, in a struggling economy where CEO salaries are being scrutinized across the board, the pay packages have raised eyebrows — and controversy. The IRS has probed hospital compensation packages; lawmakers in at least two states have proposed capping the pay of nonprofit CEOs; in one California community, voters passed a referendum limiting hospital executive pay.

At LGH, officials say the generous compensation is necessary to attract and retain the top talent. Said Lancaster attorney Alex Henderson III, chairman of the Lancaster General Health board of trustees and its compensation committee, which decides what to pay top execs: "Demand for top-notch hospital executives has grown, and we have to respond to that.

"We're not looking to be average."

24 tentacles

Lancaster General Health is a many-tentacled beast.

It owns or maintains a partnership in 24 different facilities or organizations — from the downtown hospital to the Suburban Outpatient Pavilion in East Hempfield Township. It includes the Lancaster General College of Nursing and Health Sciences, Lancaster General Medical Group and the Lancaster Cleft Palate Clinic. It partners with other regional health care systems in Horizon Healthcare Services LLP, which offers in-home therapy and pharmacist services. The Lancaster General Insurance Company Ltd., a "captive" insurance company headquartered in the Cayman Islands, is one of three for-profit corporations that fall under the LGH umbrella.

The company, according to LGH financial documents, "provides professional liability and general liability coverage, through a reinsurance arrangement, to most Lancaster General Health affiliates and employed physicians." LGH spokesman John Lines said the company's goal is not to make a profit, but to break even, have "a zero bottom line."

If it did make a profit, however, it would pay taxes at the Cayman Islands rate.

This isn't your father's small-town hospital.

"That's one argument in favor" of high executive pay, said Dr. Sean Flaherty, a professor of economics at Franklin & Marshall College, "because institutions and governance of those institutions is more complex."

As Lancaster General Health has grown, the compensation of its leadership has swelled, too.

Between fiscal year 2005-06 and 2010, as system revenue rose from $754.9 million to $938.6 million (even as the system's annual "surplus," or revenue/other income over expenses declined from $119.8 million to $81.3 million), the number of executives who earned total compensation of at least $250,000 more than doubled, from 10 to 21.

Take-home pay is only one component of total compensation, which in addition to a base salary includes bonuses and incentives, benefits and expenses. The figures are drawn from IRS form 990s and financial statements included as part of bond issues.

Some individual executives saw significant increases in their compensation over the same period.

In fiscal year 2005-06, CEO Tom Beeman earned a comparatively modest total compensation of $646,094. By 2010, that had more than doubled, to $1.35 million. That figure included a base compensation of $606,728, along with $345,000 in bonuses and incentives and $279,511 in retirement and other deferred compensation.

Bergen, who along with Executive Vice President Marion A. McGowan took on some of Beeman's duties when he left in October 2010 for a nine-month military leave of absence, saw her compensation rise from $332,823 in 2005-06 to a total of $1.1 million in 2010. The latter figure included $425,967 in base pay, $177,752 in bonuses and incentives, $111,383 in retirement and other deferred compensation, and $320,208 in what the IRS calls "other reportable compensation" such as employee contributions to 401(k) or 403(b) retirement plans.

The third highest-paid LGH executive in 2010 was McGowan, whose compensation package totaled $772,978, including $456,789 in base pay and $192,226 in bonuses and incentives. Fourth on the list was Dr. Lee M. Duke II, senior vice president and chief physician executive, whose compensation totaled $746,830, including $405,083 in base pay and $140,377 in bonuses and incentives.

Fifth was Chief Financial Officer F. Joseph Byorick Sr., whose total compensation of $652,667 included $397,160 in base pay and $140,500 in bonuses and incentives.

LGH officials say the compensation figures can be misleading, in that they count contributions to retirement accounts and other items that don't show up in a paycheck.

The IRS form lists few explicit perks, save one: LGH paid $1,044 in social club dues for Beeman in 2010.

Said Regina Mingle, LGH's executive vice president of human resources: "In this community, if you need to do business, you do it at the Hamilton Club or Lancaster Country Club. We decided ... we would pay those fees."

Lancaster General executives also have access to a "Supplemental Executive Retirement Plan," a second retirement program separate from the one available to other LGH employees. "We have no way to issue stock options," said trustee Henderson, so such a plan is an added incentive for executives. "It's very common in the not-for-profit world."

In what may be an example of how health systems require more executives to manage growing, complex systems, Byorick has since moved to a newly created position, chief financial officer emeritus and treasurer, in which he's responsible for investment holdings and long-range financial planning.

Henderson, chairman of the LGH trustees, said he's had a heck of a time trying to fill Byorick's old job — because the pay isn't competitive enough.

"We have excellent people who were not interested in us because our compensation was too low," he said.

Nevertheless, he said, "I think we were able to attract some really good people for a little bit less, because they liked the community."

More than ever, as LGH navigates the challenges posed by the Affordable Care Act (or "Obamacare"), as it struggles with Medicare/Medicaid reimbursement rates and continues to grow (as with construction of the Ann B. Barshinger Cancer Center in East Hempfield Township), Henderson said the organization has to walk a fine line. It needs shrewd, skilled leaders to ride herd over the increasingly complex organization.

It also needs to keep its core mission in mind.

"We are a charity," Henderson said. "And we want to be the best."

gsmart@lnpnews.com