A debate over hiking the salary of Phoenix-based Valleywise Health CEO Steve Purves raises the question of what a nonprofit Arizona health system leader is paid these days.
Generally, it’s a lot.
Leading the earnings for executives leading nonprofit health systems in Arizona is Peter Fine, the CEO of Phoenix-based Banner Health.
Fine’s most recent salary data available, listed on Schedule J of the company’s IRS Form 990, shows he earned a total of $25.5 million in gross pay in 2017. That’s a significant leap from his prior year earnings of $8.7 million.
The increase was driven by a one-time executive retirement plan payment of $17 million, Banner officials said.
Fine’s base salary in 2017 was $1.3 million. His compensation was boosted by a bonus and incentives, deferred pay and a payment of $17 million from a Supplemental Executive Retirement Plan — a program that was put in place early in Fine’s tenure, company spokeswoman Nancy Neff wrote in an email.
“If you subtract the one-time SERP payment, his annual compensation is very similar to 2016,” Neff wrote.
The Valleywise board on Tuesday voted 3-2 to hike Purves’ base pay to $685,000 from the current $600,000 beginning Friday. The five-year pay package for the public health system CEO includes a performance bonus of up to 25% of his base salary (up to $171,250) and an added $68,500 retention bonus on Oct. 25, 2020.
The decision to increase Purves’ pay followed debate over whether his salary is too high for a public health system CEO.
Phoenix-based Intellimed, a health care analytics company, could not immediately provide market share data for Arizona health systems. The Arizona Hospital and Healthcare Association’s most recent data says that for the 12 months ending in June 2018, Banner Health’s market share in Arizona was 32.9%.
The Valleywise market share, by comparison, was 2.3%. Market share data is based on patient discharges, association officials said.
What Arizona nonprofit health CEOs earn
Base salaries and bonuses aren’t the only compensation that CEOs receive.
The Republic looked at data from 2017 and, when it wasn’t available, from 2016, using IRS Forms 990 and, in the case of Valleywise Health, information obtained in a records request.
The following is the total gross compensation for top nonprofit health system CEOs in Arizona in 2017.
- 1. Peter Fine, Banner Health: $25.5 million
- 2. Linda Hunt, Dignity Health: $1.8 million
- 3. Thomas Sadvary, HonorHealth: $1.8 million (through 04/17 as CEO, plus work through the end of the year as adviser to the CEO and board of directors)
- 4. Dr. Wyatt Decker, CEO, Mayo Clinic in Arizona: $1.8 million
- 5. Judy Rich, TMC Healthcare (Tucson Medical Center): $1.7 million
- 6. Todd LaPorte, HonorHealth: $1.2 million (from 04/17 through the end of the year)
- *7. Robert Trenschel, Yuma Regional Medical Center: $1.1 million
- *8. Robert Thames, Northern Arizona Healthcare: $762,410
- 9. Steve Purves, Valleywise Health: $761,764.45
*Compensation is for 2016
Sources: 990 IRS forms via GuideStar, ProPublica’s Nonprofit Explorer and Valleywise Health. Not all the CEOs listed are still in those jobs.
Banner is a leading U.S. health system
Banner Health is Arizona’s largest health system. It’s nonprofit, but it’s private. It is also one of the largest health systems in the country, with 52,000 employees across six states, 28 hospitals and a network of urgent care centers, clinics, outpatient surgery centers and retail pharmacies.
A compensation committee that’s part of the Banner Health board of directors works with an independent consulting firm to establish the president and CEO’s salary, Banner officials said.
Officials say the Banner committee then works with an independent compensation consulting firm that measures salary proposals against several benchmarks, including compensation paid by a peer group of comparable nonprofit health care systems.
Valleywise Health, formerly known as the Maricopa Integrated Health System, by comparison, is a nonprofit, public teaching health system that has earned a reputation for being a “safety net” that provides care for low income and underserved populations.
Among its services, Valleywise operates the only American Burn Association-verified burn center in Arizona — one of 68 such centers nationwide. It is also one of the largest local providers of inpatient psychiatric beds.
Valleywise does not file Form 990s like other nonprofit organizations. That’s because it functions like a government organization — specifically as a “political subdivision” of the state. Under Arizona law it is a special taxing district, approved by voters in 2003 when the health system was in danger of shutting down, which is governed by a publicly elected board of directors.
At the time of the vote, Maricopa Medical Center was in danger of closing because of financial problems.
The 2003 vote authorized a tax that equates to $43.68 per year for a home assessed at $300,000 and brings in an estimated $76 million annually. In 2014, voters approved investing an additional $935 million for facility improvements at Valleywise. That added secondary property tax generates approximately $42 million per year.
Another nonprofit health system with a similar market share to Valleywise is Northern Arizona Healthcare based in Flagstaff, which paid its then-CEO, Robert Thames, a base salary of $487,078 in 2016. Thomas’ total compensation that year was $762,410, which was almost the same as Purves’ total gross compensation for that same year.
In 2016, the most recently available 990 financial information shows Yuma Regional Medical Center CEO Robert Trenschel earned a base salary of $763,687 and total gross compensation of $1.1 million.
Medicare For All = reduced CEO salaries?
The 25 highest-paid not-for-profit health system executives nationwide received a combined 33.2% increase in total compensation in 2017, Modern Healthcare found in June. Banner Health’s Fine topped the publication’s list when ranked according to total gross compensation.
“This is in some ways a symptom of the whole health care system moving into a very business-oriented model. I would add, a very business-oriented model to the detriment of patients, who find themselves paying more and more for care,” said Dr. Steffie Woolhandler, co-founder of the group Physicians for a National Health Program, which promotes a single-payer “Medicare For All” reform of U.S. health care.
“In other countries, the nonprofit CEOs earn, you know, a couple of hundred thousand, which is about what doctors are earning, frankly, and their hospitals work just fine,” she said.
“In the United States, there’s been this tendency to keep raising the CEO salaries in the non-profits … $8 million is on the high end and $25 million is very much out of range, even if it’s a one-year thing.”
She added that people in other high-income countries tend to live longer than people in the U.S.
Indeed, the latest data from the Organization for Economic Cooperation and Development shows that life expectancy from birth in the U.S. is 78.6 years old. That’s worse than 28 other countries. In Japan, which has universal, publicly-financed primary care, life expectancy is 84. Also, per capita health care spending in 2014 in Japan was less than half of what it was in the U.S., OECD data says.
“If you go for a nonprofit public service model like other countries have done, it’s going to be less expensive for everyone,” Woolhandler said. “You are going to be spending less on medical care and less on these ridiculously high CEO salaries.”
U.S. CEO pay is soaring
Nonprofit health system executives are not the only CEOs making more money. There’s an overall trend of higher CEO compensation in the private, for-profit sector of all industries.
CEO pay overall vs. typical worker compensation in the U.S. is on average a ratio of at least 221 to 1, says the Economic Policy Institute, a nonprofit, non-partisan think tank that in August released a report on CEO pay. In contrast, the CEO to typical worker compensation ratio was 20-to-1 in 1965.
“CEO pay has grown by 940.3 percent at the country’s top 350 companies, even as the average worker gained only 11.9%.” Wonder if anyone’s looking at the trend in larger nonprofits (hospitals, museums, universities etc.). https://t.co/TomI2BbZS3 via @npquarterly
— Joyce Klemperer (@JoyceKlemperer) August 19, 2019
“Exorbitant CEO pay is a major contributor to rising inequality that we could safely do away with,” the report says. “CEOs are getting more because of their power to set pay, not because they are increasing productivity or possess specific, high-demand skills.”