Fletcher Allen paid $8.4M in executive compensation in 2008

June 15, 2011

Posted by Anne Galloway

The average chief executive officer’s compensation at a Standard and Poor 500 company is $11 million, according to Executive Paywatch, a website sponsored by the AFL-CIO [2].

J. Wayne Leonard CEO of Entergy Corp., the company that owns Vermont Yankee, for example, made $8.2 million in 2010, or about 249 times the pay for an average worker at a nuclear power plant run by the Louisiana-based company.

George Paz CEO of Express Scripts received $10 million in total compensation in 2010, or about 310 times the median worker’s pay.

Vermont CEOs are a little further down the pay scale. Robert Young, CEO of CVPS, for example, made $1.15 million in 2010, or about 34 times the median worker’s pay. Lawrence Blanford, CEO of Green Mountain Coffee Roasters made about $2.4 million, or about 72 times what the median worker earns.

In Vermont, the highest paid hospital CEO is on a par with her colleagues in industry.

Melinda Estes, CEO of Fletcher Allen Health Care, is considered to be a “superb” manager of Vermont’s largest hospital and only academic medical institution.

Even so, her compensation, as reported in several recent Internal Revenue Service nonprofit 990 fillings for Fletcher Allen, is raising a few eyebrows.

Estes made $1.9 million in 2008, according to the hospital’s most recent filing with the IRS, including $649,379 in compensation that had been deferred for several years. The average total compensation for the CEO of a hospital that brings in more than $500 million in revenue is about $1 million per year, according to the IRS [3].

Doug Hoffer, a policy analyst who ran for state auditor last fall, used the numbers recently in a package of financial information about the hospital he is preparing for the Vermont Federation of Nurses and Health Professionals, a union for medical staff at Fletcher Allen. Hoffer says he is not a health care finance expert. He describes the material he collected as “raw information that is fodder for discussion.”

The hospital’s 990s are a matter of public record. The most recent filing is for fiscal year 2009.

“I have no particular expertise in health care, but I found this information troubling,” Hoffer wrote in an email. “As the U.S. and VT economies were going in the dumper during the worst recession in 80 years, Melinda Estes’ salary increased by 73% from $1.1 million to $1.9 million.”

Mike Noble, the communications director for the hospital, said because of new IRS reporting requirements and a delayed payment for deferred compensation for her retirement plan, Estes total compensation appears artificially high. Her base salary for 2008 was about $825,000, plus $244,000 in “incentive” compensation. Estes was also given $192,000 for retirement and other benefits and $405,379 in additional deferred compensation from previous years.

In 2006, Estes made about $1.1 million in total compensation; in 2007, her salary and retirement benefits totaled $1.6 million. Noble said the increase in 2007 was due to changes in the IRS filing time period which moved from calendar year to fiscal year.

A dozen other hospital executives at Fletcher Allen make about $600,000 apiece. In 2008, hospital administrators made $8.375 million total, or about $2 million more than they did in 2006, when the bottom line for administration was $6.279 million. (In 2007, they brought in $6.6 million.)

Hoffer has also analyzed data from the Department of Banking, Insurance, Securities and Health Care Administration. The total budgeted revenue for Fletcher Allen in 2011 is $1.9 billion, according to information from the department. Hoffer said that figure represents 7 percent to 8 percent of Vermont’s economy.

The budgeted revenue is based on the total amount of charges to patients – not the actual revenues, according to Mike Noble, the Fletcher Allen spokesman. The actual amount of money the hospital collected in payments for services was $885.7 million in 2010.

The total operating cost of Fletcher Allen in 2010 was $869.8 million, Noble said. The operating margin for the nonprofit was $15.9 million in 2010, or about 1.8 percent of the total costs of running the hospital.

In 2006, the total amount budgeted for charges to patients was $1.2 billion. The cost of running the hospital was about $700 million, according to BISHCA figures.

Noble said the difference between what the hospital charges and what it receives in payments is reflected in the way procedures are billed. A surgery billed for $10,000 might bring in an actual amount of $7,500 under Medicare or $3,200 under Medicaid programs.

“We need to charge ‘x’ in order to achieve ‘y’,” Noble said.

Hoffer said Fletcher Allen is doing fine financially, and yet executives are telling nurses they can’t justify higher wages at this time because the economy is in rough shape. The average annual salary for non-medical full-time employees at Fletcher Allen is $30,867; the New England average is $76,989, according to Hoffer. (Estes’ total compensation, minus the deferred retirement payout for 2008 is about 26 times the average amount paid to nurses and other non-medical full-time employees at the hospital.)

Noble said on Wednesday after this story was first published that non-physician salaries in 2008 were $54,739 on average.

Hoffer’s graphs based on BISHCA data show that inpatient care per patient per day has increased from $6,770 to $11,615 since 2006. Meanwhile, outpatient care revenue has increased 71 percent.

The hospital has also taken on more debt per bed for “uncompensated care,” or more simply for patients who don’t pay their bills. The total debt is $1 million for each of Fletcher Allen’s 500 hospital beds, according to Noble.

Estes has led Fletcher Allen since 2003 [4], when she was hired to take the place of former CEO William Boettcher who kept cost overruns for the Renaissance Project a secret and pleaded guilty to federal conspiracy charges and was sentence to two years of jail time. Three other executives were also charged with crimes. Estes is credited with restoring confidence in the hospital.

CORRECTION: VTD previously cited average compensation figures for nurses. Those full-time equivalent salaries are for non-medical employees at the hospital. In an interview on Wednesday afternoon, Noble said the total number of “debt beds” in 2008 was 500, not 400 as originally reported.