Payers & Providers Midwest Edition – Issue of August 9, 2011

8/6/2019 Payers & Providers Midwest Edition – Issue of August 9, 2011

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The highest paid hospital executive in theMidwest in 2008 was Rand L. O’Donnell, whowas paid $5,98 million to run Children’sMercy Hospitals and Clinics in Kansas City,

Mo.The fact that the leader of a children’s

hospital is the No. 1 total compensationchampion should not come as a surprise.Chief executive of cers of children’s hospitalsearn a handsome premium over CEOs of garden variety medical-surgical hospitals,according to compensation expertsinterviewed for a new Payers & Providersreport on non-prot hospital CEOcompensation.

But the amount of the disparity in totalcompensation offered to children’s hospitalCEOs versus other CEOS in the Midwest is an

astonishing $1 million.Those are the results of a study of CEO

compensation in 10 Midwestern statespublished this week by Payers & Providers. The publication compiled a database of compensation packages of 731 hospital CEOsin Iowa, Illinois, Indiana, Kansas, Michigan,Minnesota, Missouri, Nebraska, Ohio, andWisconsin, derived from gures submitted onIRS Form 990 by not-for-prot organizations.

The survey didn’t include government-owned hospitals, state university institutions,or specialty hospitals. Likewise, for-protorganizations, such as HCA or Tenet

Healthcare, are not required to le executivecompensation reports to the IRS.

The main factor pushing O’Donnell’scompensation so high was the payout of a

Supplemental Executive Retirement Plan, orSERP, that was triggered in 2008, when hebecame 57.5 years old. The trustees had putthe SERP in place many years earlier as aninducement for O’Donnell to stay at thehospital and achieve the aspirational plan thatthe board had conceived when it hired him in1993.

For more details on O’Donnell’s situation,and the hospital board’s explanation of howthe compensation package was intended towork, please obtain the full report, available atwww.healthexecstore.com.

A close look at executive compensation

across the Midwest reveals that CEOs of hospitals dedicated to children are paidsubstantially more than medical-surgicalhospital CEOs. The 14 children’s hospitalCEOs in our 10-state database earned anaverage of $1,417,627 in total compensationin 2008.

That compares to an average of $480,804in total compensation for the 732 hospitalssurveyed – a difference of almost $1 million ayear.

Eight of the 14 children’s hospital CEOs,or 57% of them, topped the million dollar

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9 August 2011

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[email protected]

the details of your event, or call(877) 248-2360, ext. 3. It will be

published in the Calendar section,space permitting.

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Midwest Edition

Children’s Hospitals CEOs Tops in PayCompensation Averages Almost $1 Million More

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In Brief

Wisconsin Declinesto Apply for Federal

Grants Worth $9 Million

The government of Wisconsin hasdeclined to pursue $9 million in health

funding grants from the federalgovernment because of opposition tofederal healthcare policies.

The group ABC for Health, based inMadison, sought a renewal of a federalgrant of $380,000 over two years tosign up patients who qualify for thestate’s BadgerCare Plus Medicaidprogram. It said the state refused tosupport the grant application, becauseit allegedly duplicated other efforts.

The Department of Health Servicesmust approve grant applications beforethey can be led. Gov. Scott Walker, aRepublican, opposes the federal healthreform law, although his administrationhas made certain exceptions to its

opposition where funding streamswere concerned.Deputy Health Services Secretary

Kitty Rhoades said her agencydeclined to go after grants that duplicated existing efforts, wereunneeded, or hadn’t been adequatelyplanned for. The state also doesn’t wishto commit itself to programs that mightrequire matching grants paid for byWisconsin taxpayers.

Another grant for $1.6 million ayear for ve years to expand alcoholand drug screening by primary careproviders was also not supported.

UnitedHealthcareCloses Down EvercareAfter Allina Backs Out

Evercare, the innovative program tobring evidence-based medical care toelderly residents of nursing homes, iscalling it quits in its Minnesotabirthplace.

Continued on Page 3

NEWS

Children’s Hospital CEOs (Continued from Page One)

mark. To put that into perspective against thecomplete universe of hospital CEO totalcompensation: For the entire database, only

65 leaders, or 8.9% of all CEOs, earned atleast $1 million in 2008 or 2009. Subtract outthe children’s hospital CEOs from thedatabase, and 7.8% of all non-children’s CEOsearn that amount. And if we further subtractout the 14 non-children’s CEOs who leadsystems and are paid more than $1 million,we get 43 non-children’s, non-system CEOshitting the million-dollar threshold, or 5.9%.

Just for fun, we wondered how much the14 children’s CEOs were paid as a cohort. Theanswer is $19,846,773.

The only children’s CEOs to earn below thedatabase average of $480,804 total

compensation were Stephen Churchill, atCrittenton Children’s Center in Missouri($433,176), and Paul Jaudes, M.D., at LaRabida Children’s Hospital in Chicago($470,690). Crittenton is a mental health andbehavioral center af liated with the St. Luke’sHealth System in Kansas City. La Rabida is forchildren with chronic illnesses anddevelopmental issues. Neither of thesehospitals is a full-service med-surg children’shospital like the others on the list, andprobably should not be counted in the samebasket with them.

After O’Donnell, at Children’s Mercy in

Kansas City, the second-highest paid wasPatrick Magnon at Children’s MemorialHospital in Chicago, at $1,802,955.

The National Association of Children’sHospitals and Related Institutions inAlexandria, Va. “does not collect or track CEOcompensation data and is unable to speak tothe issue,” said spokesman Gillian Ray. Theorganization represents 220 of the 250children’s hospitals of various types in the U.S.Ray advised speaking to a compensationconsultant.

“Children’s hospitals have always beenconsidered unique,” said one such consultant,

Bob Roeder, of Mercer U.S. in Indianapolis.“They are dealing with a wide array of challenges not typical of an acute carehospital that does not specialize. They’realmost like a specialty hospital.”

Children’s hospitals are not merely centersfor diagnosis and treatment of pediatricillnesses, but major research centers, he said.“They’re trying to identify things that can bedone today for younger children, that canultimately impact the population in thefuture.” The current focus on childhoodobesity is an example of a pediatric healthproblem that will have enormous

consequences for the public health over thlong term, he said.

The leader of a children’s hospital must

have an unusually wide and deep skillset,therefore, to manage the entire operation aits sensitive relations to the community. “Avery unique talent” is required, Roeder sai

Further, children’s hospitals tend to behighly visible and popular in theirmetropolitan areas. “They are almost adopby the community, in the sense that achildren’s hospital becomes the focal pointhe status of the city, showing what healthccan be. There is a lot of nancial support fthat is different from that associated with aacute care hospital,” Roeder added.

Being nominated for a seat on the boar

trustees of a children’s hospital is one of thgreat honors that can be bestowed on asupporter, and usually comes with highphilanthropic expectations.

Along with that comes a deep emotionlinkage of the larger community to thehospital and its mission. “It is heartwarminand sometimes heartbreaking to be involvewith children’s hospitals,” Roeder pointed “There is always going to be a differentemotional attachment to any child.”

The board of such an institution feels astronger-than-average obligation to live upthe community’s trust, Roeder said. That

translates into a determination to nd the leadership, “in the sense of being able toef ciently and effectively operate the day-tday realities of that unique institution, but to build a vision for the community, the Uand in some cases in the internationalcommunity, to demonstrate why that childhospital is different and brings value that none else can bring.”

Roeder consults to a number of childrehospitals across the U.S., including ChildreMercy, and has observed that foundations,endowments, and community leaders havealways been drawn to the mission of childr

hospitals. It may have something to do witthe campaign by television star Danny Thoon behalf of the St. Jude’s Children’s HospDuring the 1960s. TV viewers wereaccustomed to hearing appeals from Thomand his family to send donations to theMemphis hospital. Likewise, the March ofDimes was originally a charity to helpcrippled children.

“If I’m on the board,” Roeder said, “I wto make sure I have the right leader in placmake sure we’re operationally effective, anmake sure in fact we are considered to be leader in the community.”



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NEWS

In Brief

Evercare, developed by United-Healthcare in 1987, used nursepractitioners to coordinate care withdoctors and nurses. It kept patients outof the hospital and kept costs low.

UnitedHealthcare is closing outthe program because its main partner,Allina Hospitals and Clinics, decided

to take the program in-house. Evercareof cials decided it could no longer besuccessful independent of thephysicians and patients at Allina. HealthPartners, Fairview, and ParkNicollet had already studied theprogram and designed their owninitiatives to improve care for long-term care patients.

A study by the University of Minnesota in the 1990s found thathospitalization rates and emergencyroom utilization for Evercare patientsin ve states were 50% less frequentas those of other nursing homepatients.

Health Benefits Costsfor Milwaukee FirmsIncrease 8% to 10%

The average cost of employee benetsin the Milwaukee region continued itsclimb this year, rising 8% to 10% foremployers and employees

A survey by HCTrends showed thatthe trendline is still going steadilyupward, even though increases werelower than the 11% to 13% of lastyear.

For single coverage, the cost of

health benets was around $5,250 to$5,499. For family coverage it ran to

$14,000 to $14,999. The surveyestimates don’t include how muchemployees were required to pay indeductibles and co-pays.

Even so, 16% of the employersparticipating in the survey this yearsaw jumps of more than 25%. Around7% of employers responding to thesurvey said they spent more than$25,000 for family coverage.

The survey base was 200employers with around 140,000workers.

Voters in Ohio will have the opportunity tovote the federal healthcare reform law up ordown when they go to the polls on Nov. 8.

Ohio Secretary of State Jon Husted certied that a petition drive had collected426,998 valid signatures; 385,245 signatureswere required to qualify for a referendum.

Tea Party activists and constitutional rightsactivists had collected more than 546,000signatures in their campaign to prohibit thestate from participating in the requirement thatall Americans carry health insurance, or pay atax penalty.

“Ohioans want the freedom to choose thehealthcare options that are best for them andtheir families,” said Jeff Longstreth, a

spokesman for Ohioans for HealthcareFreedom. “Ohioans want patients and doctors

to make healthcare decisions, not governmeregulators.”

The law sets up health insuranceexchanges, or internet marketplaces, whereindividuals will have the option to choose thhealth plan that works for them and theirfamilies, and compare pricing and coverageoptions. Some opponents argue that the lawwill encourage employers to drop healthinsurance policies for their workers. Brian Rothenberg, leader of ProgressOhio, said he didn’t understand whsupporters of the amendment want todismantle a law that offers citizens the chancto do what those supporters say they want.

Constitutional scholars said the

amendment would not supercede the state’sobligation to comply with federal law.

Hospitals will receive a 1.1% increase in

payments for inpatient stays in scal 2012under a rule announced by the Centers forMedicare and Medicaid Services last week.That should amount to an additional $1.13billion over scal 2011.

The rule came as a surprise, given that inMay the agency released a proposed rule thatwould have trimmed Medicare reimbursementsto hospitals by 0.55%, or almost $500 million.The hospital industry objected to that rule,arguing that hospitals were already eating $155billion in reduced payments over the next 10years ordained through the Affordable Care Act.In 2011, payments to hospitals declined $142

million.“CMS has developed its update policy in

response to many comments expressing

concerns about our original proposal,” said

Jonathan Blum, director for the Center forMedicare.!“We believe that our nal policystrikes the appropriate balance betweenproviding a fair update to hospitals andensuring careful stewardship of the MedicarTrust Fund.”

The new payment policy applies to 3,400acute care hospitals. Rich Umbdenstock, president of the American HospitalAssociation, said the update was “welcomenews for patients who depend on hospitalcare. We are pleased CMS heeded hospitalsrecommendations and recognized theimportant work that hospitals are doing in

their communities to care for patients.”The update also provides a 2.5% increase

to the nation’s 420 long term care hospitals.

CMS Boosts Hospital Payment by 1%Update Reverses Decrease Announced in May

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PAYERS & PROVIDERS reaches 5,000 hospital, health plan and nprot executives statewide. There is no better venue for market

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Tea Party Puts Reform on Ohio BallotVoters Can Decide Fate of Law in Referendum

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One of American politics’ most disingenuousconceits is that healthcare must cost what wecurrently pay. People think the only way tomake it cost less is to deny care. It has been inindustry executives’ nancial interests toperpetuate these myths, but most willacknowledge privately that the way we valueand pay for medical services lies at the root of America’s healthcare cost explosion.

When the Resource-Based Relative ValueScale (RBRVS) became the framework forMedicare payment nearly 20 years ago, itequated a medical service’s “value” with four

categories of physician work inputs: time,mental effort and judgment, technical skill andphysical effort, and psychological stress. Theassessment process, handled from the outset bythe American Medical Association’s secretive,specialist-dominatedRelative Value ScaleUpdate Committee (RUC), delineates andquanties a service’s inputs in terms of itsRelative Value Units, which, with a monetarymultiplier, dene its worth.

The architects of RBRVS did not anticipatethat special interests wouldcapture the process andmanipulate it to nancial

advantage. Today, “mentaleffort and judgment” has beenhijacked to favor specialist physicians andhospitals, primary care has been stied, and therelative value system has become a study incaprice and distortion.

The resulting inconsistencies in how wevalue services are breathtaking. For anunexceptional example, compare thereimbursements for a moderately complexprimary care of ce visit for an establishedpatient (CPT 99214) with an ophthalmologist’s10-15 minute cataract extraction withimplantation of an intra-ocular lens.

A primary care of ce visit can be classi

edas a 99214 if it requires 25 minutes of face time

and has two of three components: a detailedhistory, a detailed examination, or medicaldecision-making of moderate complexity.

Keep in mind that, in primary care, newsigns and symptoms must be weighed againstthe whole of medicine. Is a persistent cough abronchial infection, tuberculosis, lung cancer,or something else? The variation across patientsis staggering as well. Primary care doctorstypically see conditions ranging from sprainsand hernias to infectious diseases and vascular

ailments. In 2011, Medicare pays $111.36 for99214.

By contrast, specialist physicians in manydisciplines face less patient variation, at leastcompared to primary care doctors’ experiencebut their work may have more “wow.” Cataracremoval, a 50-year-old procedure that has beehighly rened and automated, immediatelyimproves sight, a dramatic impact. Manyophthalmologists operate “focused factories,”processing an assembly line of 20 or morecataract patients. With pre-screened patients aa controlled clinical environment, the risks ar

relatively predictable, the mental demandslimited, and the work repetitive. For cataractextraction, Medicare currently reimburses theophthalmologist $697.12, and requires a $13patient co-payment, for a total of $836.36.

In other words, relying on the RUC’sassessment using RBRVS, Medicare values theophthalmologist’s work 7.5 times more than tprimary care specialist’s. We might argue thatmental effort, judgment, and skill required by primary care doctor are greater.

But there is a more serioaw in the approach. RBRVbases value on the demand

physician work, but ignoresactual benet to the patiensociety. It doesn’t consider whether the servicfollowed evidence-based guidelines (and wheit was appropriate or even necessary) or whetthe hoped for health outcome was achieved.

We need both primary care specialists andprocedural specialists. We need a paymentapproach that is fair, consistent, transparent anmore congruent with modern notions of value

The aws in our medical services valuationand payment system create incentives forunnecessary and unnecessarily complex servithat expose patients to gratuitous risk (and

sometimes, harm), and that articially increascost for purchasers. This one mechanism is lar

responsible for taking the healthcare industry the larger economy to the edge of an economprecipice.

OPINION

It’s Time for CMS to Retire RBRVSDistortions in Payment Have Damaged U.S. System

By Brian Klepper and

David Kibbe, M.D.

Briand Klepper is a healthcare consultant a

commentator. David Kibbe, M.D., is an exp

in healthcare informatics.

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welcomed. Please e-mail proposals to

[email protected],



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Payers & Providers Midwest Edition – Issue of August 9, 2011