As a Boise health system grows, so does its executive pay

Compensation packages at Idaho’s two largest health systems head in opposite directions, according to tax filings.

adutton@idahostatesman.comDecember 29, 2013 

The CEOs of St. Luke’s Health System and of its Treasure Valley operations both received 20 percent raises in 2011, while the CEO of their main competitor, Saint Alphonsus Health System, lost a sliver of her overall pay for the same year.

All three made more than the current total median salary for a nonprofit hospital CEO in the United States. They made at least twice as much as the average CEO across all industries in Idaho.

But that’s not the whole story.

Federal tax records obtained by the Statesman show a pattern of raises at St. Luke’s and pay cuts at Saint Alphonsus. Officials say the top leaders of both systems were paid based on the businesses they lead and how well those businesses performed.

The systems also reward their executives in different ways. St. Luke’s builds its rewards for a job well done into each executive’s base salary; a Saint Alphonsus executive can win or lose performance-based pay that is held separate from his or her salary.

THE BOISE-BASED SYSTEM

St. Luke’s grew into a larger system that makes more money. Its Treasure Valley operations reported about 63 percent more gross receipts in fiscal 2012 than the previous year. As a result, its executives oversaw more employees, a fatter wallet and a widening pool of expenses. That hoisted system CEO David Pate, local CEO Chris Roth and other top St. Luke’s employees to a higher pay scale, according to the consulting firm that advises St. Luke’s on compensation.

Pate made about $970,000 in the 2011 calendar year — well above the U.S. median for a CEO of an independent health system, based on the 2013 National Healthcare Leadership Compensation Survey. (Nonprofit hospitals report compensation for the calendar year, but their tax returns cover the fiscal year, which spans parts of 2011 and 2012. Numbers in this story are the latest available to the public.)

Roth, who was promoted to local CEO, made about $432,000 — 17 percent above the U.S. median for a subsidiary hospital CEO in 2013.

“Health care today is so challenging, it is unbelievable, and in my 16 years on the board this is without question the toughest environment I’ve ever seen. It’s uncertain, it’s changing rapidly, the laws are changing,” said Tom Saldin, board chairman for St. Luke’s Health System.

“It’s all part of what makes this environment so doggone difficult and challenging, and without really, really good, committed, visionary people, you can’t make it happen. It would be short-sighted indeed for us to save pennies on the top end when we’re trying to attract and retain some of the best people” to navigate the new environment.

MICHIGAN-OWNED SYSTEM

Saint Alphonsus also grew, but at a less feverish pace than St. Luke’s, and its workforce is about half the size of St. Luke’s.

The Saint Alphonsus Health System, owned by Trinity Health of Michigan, fell short of some undisclosed goals for the year, according to its chief financial officer. So although its executives generally had a higher salary than the previous year, they lost some performance-based pay.

System CEO Sally Jeffcoat made about $781,000 in 2011, and Karl Keeler, CEO of the system’s Nampa hospital, made about $376,000. Comparing those figures against U.S. median incomes as of 2013, Jeffcoat made 21 percent more than the median for a subsidiary health system CEO and Keeler made 2 percent above the median for his job. But their base salaries — not counting any performance-based pay — were well under the median for the country.

WHO MAKES WHAT, AND WHY?

The pay for CEOs of subsidiary health systems, such as Saint Alphonsus, generally is lower than for those who head an independent system, such as St. Luke’s. Similarly, the CEO of a hospital that belongs to a larger system usually will make less than the CEO of a hospital that stands alone.

But that’s not always true.

A study this year in JAMA (Journal of the American Medical Association) Internal Medicine found evidence that nonprofit hospital CEOs make more in urban hospitals with many patient beds and a medical school affiliation.

Happy patients generally mean higher CEO pay, but heavy use of technology at the hospital has an even stronger effect on a CEO’s salary, the study found.

What didn’t really matter, among the 2,681 hospitals studied? CEO pay seemed unaffected by a hospital’s financial performance, how much free medical care it provided or how well it did in key areas of health care quality, such as patient mortality.

Both St. Luke’s and Saint Alphonsus health systems hire consultants to look at what their peers are paying for top talent. A board of directors ultimately votes on what to pay the managers. Job performance always figures into that decision, but so does what other hospitals around the country are paying their leaders.

“Size (of the hospital) has a big impact on executive pay,” said Tracy Bean, a partner at St. Luke’s consulting firm Mercer, which uses three or four health care industry compensation surveys to find “comparable” organizations.

Salary recommendations are updated every two years, and the latest tax filings came before Mercer did its latest survey, which likely changed the peer group. St. Luke’s now is approaching 13,000 employees and has added the hospital in Mountain Home to its ranks since the last survey.

Bean would not name a health system that is comparable to St. Luke’s. The surveys, she said, just take cross-sections of like-sized hospitals without identifying who’s in the peer group. One thing she does know: More than 90 percent of the organizations are nonprofits, just like St. Luke’s

The process for Saint Alphonsus is slightly different. Because it’s part of a national Catholic hospital powerhouse, some of the goals are set by higher-ups in Michigan, while others are set locally.

The salaries rely on a “pretty elaborate policy and procedure,” according to Saint Alphonsus CFO Blaine Petersen. “Sally’s and everyone else’s salaries are based on that,” and they are reviewed every year, he said.

About one-quarter of performance-based pay hinges on financial performance. Most of the rest depends on hitting targets for quality, safety, community benefit, and patient and employee satisfaction.

Petersen offered an example: “This year, the community benefit goal is to help people sign up for the health insurance exchange.”

Audrey Dutton: 377-6448, Twitter: @IDS_Audrey

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