Leading a nonprofit health system in Lancaster County pays well, and that’s most evident upon leaving.
Tax filings for Lancaster General Health show that total compensation for several long-time executives rose markedly in their final year, which the system says is due to retirement contributions vested at departure.
- For former president and CEO Tom Beeman, who led the system for a decade, the 2016 figure was $4.8 million, up from $1.6 million the previous year.
- For former executive vice president and chief population health officer Marion McGowan, who had been with the system nearly 24 years, the 2016 figure was $6 million, up from $783,000.
- For former treasurer and hospital chief financial officer F. Joseph Byorick, who had been with the system since 1972 and has since jumped back in to fill a hole as system chief financial officer, the 2015 figure was $3.8 million, up from $659,000.
Lancaster General says joining Philadelphia-based Penn Medicine in 2015 did not affect compensation amounts.
It also says the $2.6 million compensation listed for Penn Medicine CEO Ralph Muller on Lancaster General’s 2016 report came from the larger organization, not the local coffers. Muller is now part of Lancaster General's board.
What they make
In their annual tax filings, nonprofits have to report the compensation of executives, trustees and highly compensated employees who meet certain requirements. The totals include everything from the cost of health benefits, life insurance and retirement contributions to bonuses, housing and vehicle allowances and perks such as club memberships.
The Internal Revenue Service says that compensation must be “fair and reasonable” but doesn’t set specific limits. Instead, it recommends a process that includes considering industry data from comparable organizations when nonprofit boards decide executive pay and benefits.
Compilations of that data are typically proprietary, so there’s not much of a yardstick for the public to use in assessing whether the compensation is indeed reasonable.
For instance, in 2014 the New York Times reported that an analysis performed at its request by Compdata Surveys found average base pay of $368,000 for hospital CEOs — but noted that total compensation was likely much higher because of bonuses and other benefits.
Analysis of S&P 500 companies by Equilar and The Associated Press this year found that health care had the second-highest median CEO pay package, at $12.9 million.
Lancaster General and the other local health systems that LNP asked for interviews on executive compensation responded with emailed statements.
The statements emphasized the importance and complexity of the jobs, which require experience and skill to perform effectively, and the salary benchmarking information that board members consider when determining compensation.
David Gans is senior fellow of industry affairs at Colorado-based Medical Group Management Association, which compiles industry data on subjects including compensation.
In health care as in other industries, Gans said, compensation comes down to recruiting and retaining the best talent.
“There are many opportunities for successful executives to move to another health system, so you have to look at how you’re going to retain that individual,” he said, noting that it’s not unusual for contracts to be rear-loaded.
Anne Gingerich, executive director of the Pennsylvania Association of Nonprofit Organizations, said there's a lot of public interest in executive salaries at nonprofit health systems.
“I lean back into the industry standards; what is it that’s competitive in the job market?” she said. “I know that health care is expensive, but I also want to know that I’m going to get care at a place that has the highest quality equipment and staff, and they may come at a higher rate.”
Competition’s a factor
Health care executive compensation invariably draws criticism from the community, particularly when the executives in question work for nonprofits.
A union-backed effort to cap Arizona hospital executive pay at $450,000 — which advocates said is roughly what the president of the United States makes — died last year after the union stopped defending a legal challenge to it. A similar effort in California also stalled.
“Nonprofit does not mean that an organization cannot generate revenues in excess of expenses,” said David Sarcone, associate professor of international business and management at Dickinson College. “It simply means these excesses cannot be distributed to individuals or individual organizations.”
Nonprofits often use the term “community benefit” to explain what they do with surpluses, whether it’s charity care, picking up the slack from Medicare and Medicaid, building new facilities, adding new service areas or outreach and education efforts.
Antonio Callari, economics professor at Franklin & Marshall College, said the question of executive compensation at nonprofit health systems is inextricable from overall executive compensation.
And, he said, executive compensation was altered greatly because of tax code changes starting in the 1980s that “turned the economy over to Wall Street control.”
“It was this greater power of Wall Street that created the trend toward higher and higher, even obscene, executive pay,” he said, noting that nonprofits have to compete with for-profits for executives. “As long as these general trends are in place, it isn’t really possible to raise questions about the pay of these not-for-profit institutions.”
By the numbers
In the absence of clear public benchmarks, LNP is showing reported compensation for CEO and other health system leaders in the context of total system revenue; municipal property taxes and payments in lieu of taxes; and charity care.
Charity care does not include bad debt — amounts charged that remain unpaid — and Medicare and Medicaid underpayments. Hospitals here typically report dozens of millions of dollars in losses on each of those categories.
LNP is also reporting totals of leader compensation reported. Because of the way IRS reporting requirements are structured, those cannot be treated as apples-to-apples comparisons between systems.
The data is drawn from Form 990 (see forms below), which nonprofits have to file annually, and other financial reports.
In 2016, Lancaster General had revenue of $1.09 billion; taxes and PILOTs (payments in lieu of taxes) of $6.8 million; and charity care of $8 million.
That year, compensation for former president and CEO Tom Beeman was $4.8 million; current president and CEO Jan Bergen’s compensation was $1.9 million; and the total of all 29 leaders whose compensation was reported was $24.2 million. That includes Beeman and Bergen but not Penn Medicine CEO Ralph Muller, whose compensation comes entirely from Penn Medicine.
Tax filings for the other area health systems are not yet available for 2016, so LNP also looked at Lancaster General’s numbers for 2015.
That year, it had revenue of $1.03 billion; taxes and PILOTS of $6.7 million; and charity care of $7 million. Beeman’s compensation was $1.6 million; Bergen’s was $883,050; and the total of the 25 leaders’ compensation reported was $17.1 million.
Total reported leader compensation for the preceding years, in which varying numbers of people were included, was $11.7 million in 2014 and $11.1 million in 2013.
WellSpan Health is the parent company of WellSpan Ephrata Community Hospital.
In 2015, WellSpan Health had revenue of $1.6 billion; property taxes of $7.52 million, of which $1.63 million was in Lancaster County; and charity care of $17.8 million.
That year, former president and CEO Bruce Bartels’ compensation was $310,681; current president and CEO Dr. Kevin Mosser’s was $1.6 million; and the total of the 14 leaders whose compensation was reported was $9.7 million.
For the preceding years, total reported leader compensation was $11.6 million in 2014 and $11.6 million in 2013.
Former CHS hospitals
In 2015, the hospitals formerly known as Lancaster Regional Medical Center and Heart of Lancaster Regional Medical Center were part of Tennessee-based for-profit chain Community Health Systems Inc., which did not report local executive pay.
Financial reports show CHS net operating revenues of $19.4 billion in 2015, $18.6 billion in 2014 and $13 billion in 2013.
In those years, compensation totals for system CEO Wayne T. Smith were $5.8 million, $10.4 million and $26.4 million, respectively.
The two local hospitals recently became part of what formerly was known as PinnacleHealth System, which on Sept. 1 became part of University of Pittsburgh Medical Center.
The regional system is now known as UPMC Pinnacle, and the local hospitals are UPMC Pinnacle Lancaster and Lititz, respectively.
PinnacleHealth’s total compensation for then-president and CEO Michael A. Young, who has since left, was $1.2 million in 2015. System revenue that year was $973 million, and charity care was $9 million. Reports did not make it clear how much it paid in property taxes and PILOTs that year, and the system did not answer questions on the subject.
Total compensation for all 13 PinnacleHealth leaders reported that year was $7 million. Previous totals were $7.4 million in 2014 and $7.3 in 2013.
Hershey Medical Center
In 2015, Penn State Milton S. Hershey Medical Center had revenue of $1.6 billion and charity care of $14.3 million. Reports did not make it clear how much it paid in property taxes and PILOTs that year, and the system did not answer questions on the subject.
That year, CEO and Penn State College of Medicine Dean Dr. A. Craig Hillemeier’s total compensation was $1.1 million.
Because Hershey is an academic medical center that’s part of Penn State University, reporting requirements are different and its executive compensation disclosure includes people who have nothing to do with the medical center, such as University President Eric Barron and head football coach James Franklin.
For 2015, its reports show $14.7 million in compensation to 21 executives, including Hillemeier at $1.1 million; Barron at $882,839; and Franklin at $4.4 million.
Previous totals were $15.7 million in 2014 and $15.8 million in 2013.
For UPMC, which is the parent organization of UPMC Pinnacle, 2015 operating revenues were $12 billion, and compensation for President and CEO Jeffrey A. Romoff was $6.5 million. In all, compensation was reported for about 150 people, of whom 16 got at least $1 million apiece.
For Penn Medicine, which is the parent organization of Lancaster General Health, 2015 operating revenues were $4.9 billion. Penn Medicine CEO Ralph Muller got $2.8 million that year, and in all compensation was reported for 39 leaders, of whom 17 got at least $1 million.