Do these salaries sound out of line? This hospital is RN unionized and about to start new negotiations. Wonder how well they will go???
The $2 million Man
Published in the Home News Tribune 1/12/03
Compensation for hospital's CEO exceeds other health-care facilities'
JASON TOWLEN/Staff photographer
Robert Wood Johnson University Hospital President and CEO Harvey Holzberg earned a total compensation of $2.15 million in 2001, a figure higher than the national average. RWJUH spokesman John Patella said, however, that Holzberg's duties extend beyond just the hospital.
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By SARAH GREENBLATT
Robert Wood Johnson University Hospital isn't the largest in New Jersey, but it outclasses the nation's largest and most prestigious health-care facilities when it comes to paying its president.
Harvey Holzberg, president and CEO of New Brunswick-based RWJUH, garnered a compensation package worth more than $2.15 million in 2001, featuring $1,225,355 in salary and bonuses, and $925,199 more in deferred compensation and benefits.
The year before, Holzberg earned $1.8 million, with a compensation package featuring $801,471 in salary and bonuses and $1,066,148 in deferred compensation and benefits, according to tax filings by the hospital.
The pay packages were more lavish than those earned by leaders of the Cleveland Clinic and Memorial Sloan-Kettering Cancer Center, although RWJUH's revenues are substantially less than at those internationally renowned hospitals.
Sloan-Kettering, which generated $1.2 billion in revenues during 2001, provided its president with $1.4 million in compensation that year and $992,443 the year before. The hospital's president, Dr. Harold Varmus, formerly directed the National Institutes of Health and won the 1989 Nobel Prize in medicine.
The Cleveland Clinic Foundation, which offered its president, Floyd Loop, a compensation package worth $1.67 million in 2000, reaped some $2.8 billion in revenues.
Mount Sinai Medical Center President Barry R. Freedman received a $1.54 million compensation package in 2000, when the hospital generated $2.2 billion in revenues.
By contrast, RWJUH garnered revenues of $422 million in 2000 and $440 million in 2001.
Holzberg's pay package raises eyebrows among experts.
"It certainly grabs your attention," said Gerald Griffith, a tax attorney in Detroit who specializes in health-care organizations. "That's a large number for a mid-size hospital."
Uwe Reinhardt, a health economist at Princeton University's Woodrow Wilson School of Public and International Affairs, called Holzberg's compensation "surprising."
Hospitals like Sloan-Kettering and the Cleveland Clinic "are much larger, more prestigious, more globally known institutions," Reinhardt said. "One would not expect (the president of) Robert Wood Johnson to make as much or more than those."
The larger the hospital, Reinhardt said, the harder it is to run.
"The more revenue, the more patients, the more stuff that can go wrong," he said.
RWJUH spokesman John Patella said, however, that Holzberg is responsible for far more than the hospital. As president of the hospital's parent organization - the Robert Wood Johnson Health Network - and the Robert Wood Johnson Health System, a statewide affiliation of eight hospitals as well as health centers and long-term care facilities, Holzberg presides over a $1.2 billion operation that employs 11,000 workers.
Patella said it is unfair to compare Holzberg's salary with those of leaders of individual hospitals.
Yet Holzberg's compensation also exceeded that of presidents of larger nonprofit health systems, according to tax filings by those organizations.
The nation's largest private nonprofit hospital system, St. Louis-based Ascension Health, owns 65 hospitals that generated $5.8 billion in revenues in 2000. Its president garnered a pay package of $617,406 that year.
The president of North Shore-Long Island Jewish Health System, which operates 13 hospitals and took in $2.3 billion in patient revenues in 2000, received a compensation package of $1.09 million that year.
The CEO of Johns Hopkins Hospital, who also runs the Johns Hopkins Health System -- a combined $1.02 billion academic health-care operation -- received a compensation package totaling $966,260 in 2000.
RWJUH chief financial officer John Gantner said, however, that other hospitals and health systems may not report compensation figures as exhaustively as the New Brunswick-based institution.
Gantner said Holzberg's 2001 compensation package, as reported to the IRS, featured some $732,117 in retirement benefits that have not yet vested and $193,082 in projected bonuses that he may never actually take home. Other hospitals may not report such contributions or projections, Gantner said, because the IRS does not require it.
"That money hasn't left hospital coffers," Gantner said, calling RWJUH "ultra conservative" for reporting the data.
Because the hospital was in dire financial straits when Holzberg arrived in 1989, Gantner said, contributions toward his retirement benefits had to be postponed until recent years.
Indeed, from a fiscal standpoint alone, RWJUH has been transformed during Holzberg's 14-year tenure. At the time of Holzberg's appointment, the hospital's name and the phrase "debt-ridden" often were mentioned together. The hospital faced an accumulated $15.6 million deficit on top of $13 million in unpaid physicians' salaries that were owed to the University of Medicine and Dentistry of New Jersey.
By 1994, RWJUH enjoyed an 11 percent increase over revenues the year before, while other area hospitals stagnated. In 1996, the hospital operated at a staggering 24 percent profit, albeit through a one-time adjustment in its reserves.
RWJUH has continued to perform well financially, generating $3.6 million in profits in 2001 and $22.1 million the year before, Moody's Investors Service reported in September, when it reaffirmed the hospital's A1 bond rating.
And the institution has grown under Holzberg's watch, including the construction of the Bristol-Myers Squibb Children's Hospital at RWJUH, which opened in 2000. Holzberg also played a key role in enabling the Cancer Institute of New Jersey -- once housed in an office on George Street -- to evolve into the state's only center to gain designation by the National Cancer Institute as a comprehensive facility.
In 2001, Holzberg received a $451,968 bonus that reflected his attainment of long-term hospital goals.
Holzberg's compensation is not unprecedented among CEOs of nonprofit hospitals; in 1998, the CEO of New York Presbyterian Hospital, Dr. David B. Skinner, garnered $2.38 million. But in 2000, NYPH's new CEO received $653,517, while Skinner earned $4.3 million in pay as a surgeon at the hospital.
The president of the University of Pennsylvania Health System, Dr. William Kelley, garnered $1.9 million in base pay in 1999-2000 just for his part-time duties heading the university hospital, but he was fired after the facility ran up a $300 million deficit and was forced to lay off 2,800 employees -- 20 percent of its workforce. He received a $5.8 million severance package.
Still, Holzberg's pay in 2000 exceeded that of 90 percent of the CEOs of nonprofit hospitals that reap $50 million or more in annual revenues, according to a report released this year by Philanthropic Research, Inc. of Williamsburg, Va.
Based on data from 749 nonprofit U.S. hospitals with revenues of $50 million or more, the report found that 90 percent of the CEOs received compensation packages worth $495,859 or less during 2000.
The former CEO of Saint Peter's University Hospital, John Matuska, in 2000 garnered a pay package of $281,799.
In 2001, Holzberg's compensation surpassed that of his peers at the nation's 282 largest charities based on revenues, according to an annual survey published in October by the Chronicle of Philanthropy. RWJUH was not included in the survey.
Holzberg was ahead of all of the presidents in the survey, including Loop of the Cleveland Clinic, who was the highest-paid CEO.
The Chronicle noted that some smaller organizations might pay their leaders more than those appearing in the survey.
Nationwide, hospital executives have enjoyed substantial pay hikes in recent years, according to a survey published in July by Modern Healthcare magazine. Salaries for hospital presidents climbed faster than those of for-profit CEOs, the magazine reported. Between 2000 and 2001, the median pay for hospital CEOs rose 12.6 percent, while most corporate executives garnered a 4.4 percent raise.
Yet even among hospital leaders, Holzberg's raise was unusually large, climbing 15 percent between 2000 and 2001.
Regardless of a hospital's size, fiscal fitness or programmatic success, the Internal Revenue Service forbids employees of nonprofit organizations from garnering lavish pay, described as "excess benefits," said Mike Stewart, a former national practice leader for Buck Consultants in New York.
A 1996 federal law allows the IRS to impose sanctions if compensation is found to be "unreasonable," Stewart said.
"Pay must be comparable to what is paid for similar kinds of jobs in the marketplace," Stewart said.
Under regulations that took effect last year, excess benefits are subject to a "tax" of 25 percent, which must be repaid to the nonprofit organization. Board members who knowingly approve unreasonable pay face penalties of 10 percent of the excess benefit.
In response to the rules, Stewart said, compensation committees of nonprofit hospital boards typically hire consultants and review pay packages for leaders of similar institutions before deciding how much to pay their own CEO.
While nonprofits must make efforts to prevent "a windfall," Griffith said, determining the reasonableness of compensation can be tricky.
The IRS may allow bonuses and revenue-sharing arrangements, if they are subject to a "cap," according to the regulations.
"There is no bright line to say if you go beyond that, it's excessive," he said, adding that the IRS routinely audits one or two health-care organizations in each state every year. The IRS also may opt to conduct an audit if its suspicions are triggered, he added.
RWJUH was audited, as part of a routine review by the IRS in 2000 and 2001, Gantner said. After scrutinizing the hospital's compensation data, expense accounts, employee benefits and more, the IRS found that "we are a very compliant and careful organization," he said.
Whether or not compensation packages run afoul of IRS rules, nonprofit hospital CEOs who garner generous paychecks can create resentment by employees.
"It can be a big issue in morale," said John H. Vogel Jr., a professor at Dartmouth College's Tuck School of Business.
Generous pay for a hospital CEO can send an adverse -- if unintentional -- signal to nurses and other employees who earn more modest salaries, Vogel said.
"It sort of says here's what the hospital values and here's what they don't value," he said.
Yet many nonprofit organizations have taken their cues from the corporate sector when deciding how much to pay their leaders, said Jon Van Til, a professor of urban studies at Rutgers-Camden and past president of the Association for Research on Nonprofit Organizations and Voluntary Action.
"We've had a lot of attention being paid to corporate CEOs who are overpaid," Van Til said. "There's been a kind of management mantra that's floated around the nonprofit sector to the effect that nonprofit organizations are also important and therefore, to show how important they are, they need to follow the lead of the for profits . . . It's sort of a sorry trend."
A widespread fear that competing hospitals will lure away a valuable leader drives many hospital boards to increase salaries, Reinhardt said, contending that such worries are overblown.
"There's always a fear that 'Mount Sinai will steal our CEO,' " Reinhardt said. "My feeling is that, within your ranks, you probably have someone who could take it over. People can grow into it. Look at George Bush; don't tell me he didn't grow into his job."
For-profit hospitals typically provide their presidents with stock options that can lift their salaries to $15 million, said Dr. Sidney Wolfe, director of the Washington-based Public Citizen Health Research Group.
"My question is: Why are any of these people making this much?" Wolfe said. "Health care is supposed to be a service -- it is a service."
Jan 16, '03
Does anyone know if there are RNs on their Hospital Boards where they work.
Now I personally think that there should be equal representation. If there are MD then there should be equal RNs.
Jan 16, '03
Maybe the hospital boards who decide the CEO salaries should have more imput from the public especially in Not for profit Hospitals????
Jan 16, '03
No money in health care to give nurses raises, or to have the equipment that we need to take care of our patients but money to pay these kinds of wages to CEO's and the severence pay of 5 million. Who cares if they got fired with a severence package like that?
Jan 16, '03
In my sociology class in college we talked about how the average HMO CEO makes 6 million dollars a year. That is just greed, if you ask me. Why do CEO's get paid so much when we are the ones making a difference and saving lives? You think that money could be better spent, like put to patient care!