Study: Small-hospital CEOs in Maine earn $230K-$330K — with a $550K exception

Redington-Fairview General Hospital has 25 beds.

Located in Skowhegan, a small Somerset County town of about 8,500 people, it runs a busy ER, owns some doctors’ offices and serves as a critical-access hospital for 30,000 people from Skowhegan to the Canadian border. The most seriously sick or injured patients must be sent to larger facilities such as Central Maine Medical Center in Lewiston.

CMMC has 250 beds.

Located in one of the largest cities in the state, CMMC serves as a major hospital for 400,000 people throughout six counties. Like Redington-Fairview, it runs a busy ER and owns some doctors’ offices. It also has a sleep center, a cancer center and a heart center. When someone is hurt in a major car accident, gravely ill or injured or having a heart attack, CMMC is one of the few Maine hospitals they’re whisked to by air-rescue service LifeFlight.

But in 2010, the CEO of little Redington-Fairview earned more than the head of CMMC, Laird Covey.

Redington-Fairview’s Richard Willett also earned more than the CEO of MaineGeneral Medical Center, in Augusta and Waterville, the third-largest hospital in the state. He earned more than the CEOs of Southern Maine Medical Center in Biddeford, Pen Bay Medical Center in Rockport and St. Joseph Hospital in Bangor, all hospitals with more than 100 beds. The heads of St. Mary’s Regional Medical Center in Lewiston and Mercy Hospital in Portland made more than Redington-Fairview’s CEO, but not by much.

Willett’s compensation package: nearly $550,000.

And that’s after a pay cut. The year before, he earned $693,000.

“I don’t care where you live, Lewiston or Skowhegan, that’s a lot of money,” said Joanne Woodard, a Skowhegan resident who believes her local nonprofit hospital is spending at the cost of taxpayers and patients.

For the past two years, the Sun Journal has examined executive pay, perks and certain expenditures made by the largest nonprofit hospitals in Maine. However, many of the state’s hospitals are small, rural and classified as critical-access, which earns them higher Medicare reimbursements — more taxpayer money — than other hospitals. Maine has nine such hospitals licensed for 25 acute-care beds only. This year, we focused on them.

The findings:

• Most small hospital CEOs earned $230,000 to $330,000.

• Some executives got special perks, such as car allowances.

• One tiny hospital spent $80,000 on lobbying, nearly twice as much as the large Eastern Maine Healthcare Systems, which is the parent of Eastern Maine Medical Center and six others.

• Four small hospitals spent hundreds of thousands of dollars on advertising, conferences and travel.

• Nonprofit hospitals receive their special nonprofit status because they’re supposed to benefit the community, but spending for charity care and community benefit varied widely.

CEO compensation

Maine has 39 acute-care and specialty hospitals. All receive taxpayer money for giving care to poor and elderly patients. All but one — the New England Rehabilitation Hospital of Portland — are nonprofit. As nonprofits, Maine hospitals get tax breaks and are able to solicit tax-exempt donations. In return, the IRS requires that they pay their CEOs “reasonable compensation” — a vague guideline based on the salaries paid by similar nonprofits or for-profit companies. They must also file special federal tax forms detailing their revenues and expenditures and make those forms available to the public.

The Sun Journal analyzed the most recent tax forms for the state’s nine very small, critical-access hospitals, those licensed for 25 acute-care beds and no long-term care.

CEO compensation has been a hot-button issue in recent years, provoking a lot of talk among lawmakers and one bill aimed at capping executive salaries — that bill died in committee. Proponents of such legislation have said high executive compensation is a symptom of greater health-care spending problems and is one reason medical bills are so high. Opponents have said hospitals must pay their executives well to entice the best leaders, particularly in a rural state like Maine.

Although much of the discussion has been centered on the pay given to the CEOs of the state’s largest hospitals, at least one small hospital CEO’s compensation isn’t far behind them.

In fiscal year 2009-10, the most recent year tax forms are available, Redington-Fairview’s Willett earned almost $550,000, including nearly $225,000 in retirement or other deferred compensation. His compensation package also included nearly $304,000 in base salary and $20,500 in nontaxable benefits.

The CEOs of the other eight small hospitals earned, on average, $295,000 in total compensation. At the low end was Millinocket Regional Hospital, which paid CEO Marie Vienneau $233,500, including $3,000 as part of the same retirement plan all employees get. That’s less than half Willett’s overall compensation. Her retirement package was 1.3 percent of his.

For that pay she performs two jobs: CEO and chief nursing officer.

“I don’t know if you know a lot about Millinocket, but it has been through tough economic times over the past 10 years and that has certainly impacted compensation policies. I would say we do the best we can,” Vinneau said. “The unemployment rate here is, I still think, hovering around 15 percent. We’ve gone, I think, two years where none of our employees, including myself, have received compensation increases.”

Among the nine small critical access hospitals, the closest compensation package to Willett’s was $386,000 paid to Erik Steele at Blue Hill Memorial Hospital. However, Steele, chief medical officer of Eastern Maine Healthcare Systems, was serving as temporary CEO on behalf of EMHS, Blue Hill’s parent organization. He performed two jobs that year: interim CEO of Blue Hill and chief medical officer of EMHS.

In 2011, Blue Hill’s new, permanent CEO earned $225,000.

It’s unclear exactly why Redington-Fairview chose to pay its CEO twice as much as other small Maine hospitals. Redington-Fairview’s leaders, including the hospital spokeswoman and Willett, the CEO, refused to return repeated phone calls and messages left over several months. Only two of the hospital’s nine board members from 2010 agreed to talk about the hospital at all.

William Laney, board treasurer in 2009-10, said the board is responsible for setting Willett’s compensation and it considers his pay annually, using data compiled by an outside source to gauge how much the leader of Redington-Fairview should be paid. It is unclear how long Willett has been CEO, but Laney said he has been with the hospital for years.

“I think we’re looking to be in line with similar institutions with similar budgets. We recognize that it [the CEO] is a difficult job, I think an increasingly difficult job, because of the general health care climate, regulations both state and federal,” Laney said. “I think it is a difficult but a very important job.”

Sixty miles away, Waldo County General Hospital is the same size as Redington-Fairview, made virtually the same amount of money and it spent a similar amount in 2009-10. Its CEO earned $369,500, about $180,000 less than Willett. The year before, Waldo County’s CEO earned just over $357,000, almost half of Willett’s $693,000 compensation at the time.

Laney couldn’t remember how much Willett is paid and, when told how much it is, couldn’t explain why Willett’s compensation package was more than others.

“I don’t know without having my records in front of me whether that’s accurate or not,” he said. “But all I can say is that the decision is made annually, it’s based upon comparisons to similar CEOs in the hospital business with similar-sized budgets.”

Virginia Howard was a board member in 2009-10. She said the board had a philosophy when it came to CEO compensation, but she declined to say what that philosophy was.

“I don’t think I feel free to mention that. I don’t know what they’d be comfortable with me saying or not saying,” she said. “I thought it was a reasonable philosophy for the area.”

But Woodard, a 62-year-old Skowhegan resident and member of the town’s budget committee, disagrees. She has spent months combing through Redington-Fairview’s tax documents and talking with people about the hospital for her own interests. She believes the medical center is spending at the cost of higher taxes and larger patient bills, and the CEO’s large paycheck is an example of it.

“I don’t think anybody’s worth that money,” she said. “Come on, what do they do?”

Laney said that what Willett does is “an exceptional job in moving the hospital forward.”

“I think he’s done an excellent job. I believe the hospital provides good care and serves the community well. In large measure he’s responsible for a lot of that. You know, obviously along with the medical staff and the nursing staff,” Laney said.

Woodard, however, believes the care isn’t so excellent, citing the 2009 medical license revocation of a Redington-Fairview surgeon for incompetence, unprofessional conduct and sexual misconduct there in 2007. She said that although the hospital has grown — it added a building to consolidate doctors’ offices in recent years — she doesn’t feel it serves the community any better.

She points to the time in 2009 when she brought her husband, who was dying of cancer, to Redington-Fairview’s ER for help with his pain.

“They said, ‘We don’t do that here,’” she said.

Executive perks

Executive perks have been another hot button issue for big hospitals in recent years. Four small hospitals detailed some kind of executive perk in their tax forms. Some were worth a few hundred dollars; others were worth several thousand.

Mount Desert Island Hospital’s perk was the smallest: $399 to pay for its CEO’s membership to the local YMCA.

“It’s part of his contract,” said CFO Christina Maguire-Harding.

The hospital gave other employees up to $100 for fitness club memberships.

At Calais Regional Hospital, the CEO got a $7,260 car allowance.

“Take taxes out of that and it’s probably worth $4,000. That’s taxable income to me,” said CEO Mike Lally. “That’s the only benefit I get.”

Lally earned just under $260,000 in 2010, with $200,000 in base salary, the $7,260 car allowance, and just under $53,000 in health insurance and other nontaxable benefits.

Penobscot Valley Hospital also gave its CEO a $7,260 car allowance. The hospital’s CFO received a car allowance as well, for $3,600.

CFO Ann Marie Rush couldn’t say why Penobscot Valley decided to provide car allowances.

“It’s just part of the compensation package that was developed with the [hospital] board and Quorum,” Rush said.

Quorum Health Resources is a Tennessee-based company that sells consulting, management and education services to independent hospitals. Several of Maine’s smallest medical centers use Quorum to recruit executives and provide other services.

Although it gives its CEO and CFO car allowances, Rush said Penobscot Valley Hospital is mindful of its compensation level.

“It’s a conservative area here. We’re acutely aware of the community and how people would perceive that,” she said. “We try to make sure we have people who work here who want to be here, who are not here to become a millionaire overnight.”

Waldo County General Hospital paid for its CEO to bring a companion when he traveled on hospital business in fiscal year 2008-09. It’s uncertain whether that continued in 2009-10, though the perk wasn’t noted in that year’s tax forms. It’s also unclear how much the hospital spent on companion travel, where they went or why. The hospital’s CFO and board president did not return phone calls. CEO Mark Biscone declined to comment on Waldo County General Hospital’s tax forms.

“They state what they state,” he said.

Lobbying, advertising, travel and conferences

Although many Maine hospitals large and small acknowledge some kind of spending on lobbying — typically they belong to the Maine Hospital Association or another group, and a portion of their dues goes to lobbying — only one of the nine small hospitals wrote a big check.

Penobscot Valley Hospital spent nearly $80,000 on lobbying in 2010, far more than any of the other small hospitals analyzed and almost twice that of EMHS, one of the largest health-care systems in the state.

Penobscot Valley CEO David Shannon and CFO Rush said that was a one-time expense. The hospital paid a lobbyist nearly the full $80,000 in an attempt to get federal lawmakers to approve appropriations money that could have gone to Penobscot Valley. The hospital wanted to upgrade its CT scanner and get a new digital mammography machine. Had the lobbying been successful, the hospital could have gotten about $650,000.

It was not successful.

“That was the first time we tried to do something like that,” Shannon said, adding the hospital likely wouldn’t do that again.

Four other hospitals had greater-than-average spending on advertising, conferences and travel, expenditures often noted by experts because they don’t directly impact patient care. Bridgton Hospital, Mount Desert Island Hospital, Redington-Fairview and Sebasticook Valley Health each spent a total of $300,000 or more in those categories.

For advertising and promotion in 2009-10, the nine small hospitals spent an average of $86,000. Waldo County General Hospital was at the low end at $728. Bridgton Hospital was on the high end, with just over $205,000.

Matthew Cox, CFO of Central Maine Healthcare, Bridgton’s parent organization, said most of that money was spent on employment ads and to promote the medical center’s 22 doctors.

“Bridgton Hospital employs more doctors than probably any other critical access hospital,” he said. “So anytime there’s a new doctor, we do advertising for that new doctor to get them busy.”

Redington-Fairview spent the second-most on advertising: just over $190,000.

Spending for conferences and travel is more difficult to gauge. Although each is its own line item, some hospitals combine the two and list everything, or nearly everything, under travel.

That’s what Bridgton Hospital did. Although it listed $151,000 in travel expenses, that figure includes conferences, conventions and meetings.

“The biggest piece of that is training and continuing education for our employed physicians,” Cox said. Continuing education is required for doctors to keep their medical licences, though hospitals aren’t required by the state or any outside group to pay for that education.

For travel, the nine small hospitals spent an average of $78,000. Millinocket Regional Hospital spent the least at $20,000.

“We’re pretty tight up here,” said Vienneau, the CEO. “Our margins are thin. We have to keep our expenses down. Just the nature of our economy and our community [means] we don’t have a choice.”

Bridgton spent the most on travel, but that figure included conferences and other expenses. Sebasticook Valley Health — formerly Sebasticook Valley Hospital — spent the second-most on travel, about $126,000. It also spent about $171,000 on conferences, conventions and meetings.

Liisa Janelle, chief human relations officer, said Sebasticook Valley spends about $500 per person each year on education, including clinical training and an initiative to reduce costs and make the hospital more efficient.

“We’re in an industry where it’s changing all the time, and we have to stay on top of things,” she said.

Three hospitals listed nothing under conferences because they combined that expenditure with travel. The remaining six spent an average of $165,900 on conferences, conventions and meetings. Blue Hill spent the least, $75,700. Mount Desert Island Hospital spent the most, $294,400.

Mount Desert CFO Maguire-Harding said just over half of that was spent on clinical and professional training for nurses, doctors, emergency room workers and others who need continuing education in order to keep their licenses.

The remaining $141,000 was spent on group training, including courses offered to medical professionals throughout Hancock County. Those professionals pay to take that training, reimbursing the hospital for about 60 percent of that spending.

Community benefit

Nonprofit hospitals receive that special nonprofit status because they’re supposed to benefit the community. A couple of years ago, the IRS began asking hospitals to detail exactly how they do that — backed up with numbers.

All hospitals are now supposed to report what percentage of their total expenses benefits the community. In other words, the IRS wants to know how much hospital spending is helping the community and how much is helping the hospital.

Because the requirement is so new, some hospitals report their community benefit percentage differently. Of the nine small hospitals, for example, most factored in only the cost of charity care, unreimbursed Medicaid and general community benefits, such as contributions the hospital made to community groups or services it provided to improve health in the area. But at least one hospital added to “community benefit” the cost of bad debt, the amount of hospital bills left unpaid by patients.

Experts expect reporting to become more uniform as hospitals get used to filling out the new section. Until then, it’s one of the few ways to gauge how much a hospital’s spending benefits the community.

Among Maine’s small hospitals, the community benefit percentage varied wildly. At Blue Hill, 2.8 percent of expenses went to charity care and other community benefits. At Waldo County General Hospital, 10.3 percent did.

Among the nine, the average was 5.9 percent.

Nancy Glidden, CFO of Calais Regional, said her hospital’s accounting firm told her the industry standard is 9-11 percent. Calais reported 9 percent, one of the highest of Maine’s small hospitals. Its figure did not include bad debt.

Although the industry standard is 9-11 percent, officials at most of the small hospitals said they do not work toward a goal percentage. Some say they meet 9 percent easily. Others say they struggle with lower amounts, torn between aiding the community and balancing their budget.

“We don’t set a target that we try to achieve. We’re typically around 3 percent, anywhere between 3 to 5 percent, for charity care,” said Rush, CFO of Penobscot Valley Hospital, which showed about 6.2 percent of its spending benefited the community in 2010. “It would be probably difficult to absorb much more than that when you bring all of the rest of the operations into that mix. We generally don’t have a large bottom line.”

Over the next couple of years, hospitals will be required to provide even more detail about how they benefit the community. It’s accountability Woodard, for one, welcomes.

“If you’re going to do something for the community, do it where the community as a whole, the taxpayers, benefit from it,” she said.

Taxes

Like all nonprofit organizations, Maine’s nonprofit hospitals don’t have to pay property taxes.

In Skowhegan, that’s becoming something of an issue.

Redington-Fairview General Hospital is a small, critical-access hospital licensed for 25 acute-care beds. In recent years, the medical center has taken over independent doctors’ offices and built a 60,000-plus-square-foot addition to house them. It has bought three or four houses and razed them, turning the properties into a hospital-owned parking lot. It has talked about buying more.

The problem: Every property the nonprofit hospital buys is taken off the local tax rolls.

And in Skowhegan, sewer costs are included in property taxes, so while the hospital uses almost 30 percent of the town’s sewer services, according to the town, it doesn’t pay anything toward those costs.

“For the hospital it’s twofold, because they’re tax exempt and they use a lot of our sewer,” Town Manager John Doucette said. “And we can’t do anything about it.”

Redington-Fairview isn’t alone in its property-tax-free status, and Skowhegan isn’t the only town caught between loving its nonprofits and hating the loss of tax money.

In 2005, Lewiston adopted a stormwater fee — dubbed a “rain tax” by some — to get the city’s nonprofits, including its two hospitals, to pay some share of the costs of city services. The city said it established the fee, which is based on the amount of water runoff generated by a property, because residential property owners were paying for more than half the cost of dealing with runoff, while tax-exempt properties paid nothing.

During the last legislative session, Rep. Michael Celli, R-Brewer, submitted a bill that would have allowed towns to tax nonprofits for the services they used. The bill died in committee. Celli believes that’s because his bill didn’t clearly exclude schools. Although Celli does not plan to run for re-election, he said several colleagues have agreed to sponsor a new version of the bill.

“You look at some of these, especially these major hospitals, that obviously claim to be a nonprofit, but you look at their building and what they keep on adding to and you see what they pay their CEOs, and their standards as nonprofits are kind of questionable at times,” Celli said. “The services that they’re using are being paid for by the ordinary taxpaying citizen living in their homes.”

Although Redington-Fairview and Skowhegan aren’t unique, the town’s reliance on the property tax to pay the town’s sewer bill does make their situation more uncommon. Town Manager Doucette said the town has talked about separating property taxes and sewer fees, but there weren’t enough votes to pass an ordinance.

Doucette makes clear that he likes Redington-Fairview. It’s one of the biggest employers in town, it provides important services and the hospital is “a good neighbor.” But he laments the loss of tax money and the expenses the town incurs, such as supplying the hospital with police protection every time there’s an irate patient.

“I’m not saying they shouldn’t be tax exempt. I just don’t think they should be 100-percent tax exempt,” Doucette said. “And I think that’s a big thing nowadays. Forty years ago? Yeah, OK. Now, they’re businesses. In fact, I talked to someone up there one time and they said, ‘Our business plan…’ and I’m going, ‘Wait a minute. You’re not a business.’”

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