The five top executives of Intermountain Health Care Inc., a not-for-profit corporation, received a total of $1.5 million in 1989 in salaries and bonuses, according to federal tax forms.
But the compensations are low compared with industry averages, IHC officials say. Salary studies of the health-care industry confirm that.Scott S. Parker, IHC president and chief executive officer, made $392,640 in 1989 - a 5.4 percent increase over his 1988 income of $372,540. Compensations in 1989 for the corporation's top four senior vice presidents - David Jeppson, William Nelson, Steven Kohlert and Steven Lewis (who has left the corporation) - ranged from $334,835 to $237,224, according to the 990 tax forms. The forms, filed by non-profit corporations annually with the Internal Revenue Service, were provided by IHC at the request of the Deseret News.
IHC has appealed several tax assessments before the Utah Supreme Court, and the Utah Tax Commission is writing guidelines to help counties decide whether non-profit hospitals should pay taxes. The Deseret News requested the 990 forms in light of the tax hearings.
A survey conducted by the accounting firm of Deloitte & Touche indicates the average annual compensation for CEOs of non-profit hospital systems of comparable size was $437,300 in 1989 - $44,600 more than Parker made.
Still, citizens and business watchdog groups, concerned about escalating health-care prices, question whether IHC should reward its officials so well when it is a not-for-profit organization that doesn't pay property taxes.
Quinn G. McKay, director of the Utah Health Cost Management Foundation, believes such salaries are out of line for a charitable institution in a relatively poor state. McKay's foundation is a watchdog group put together by employers who pay health-care bills.
"We are very concerned about health-care costs. They are skyrocketing," he said. Cutting Parker's salary in half wouldn't lower hospital rates, McKay said, but such economies might help convince the community that IHC cares about rising health-care costs.
"It's a matter of appearance. The public needs a great deal of confidence in its health care. Things that distract from that confidence must be faced up to," he said. "Caesar's wife not only has to be chaste, she has to appear to be chaste."
IHC argues it shouldn't pay property taxes because it makes a significant contribution to the community through free medical care to the needy, unreimbursed care, subsidies to government health programs and support of education programs and health screenings. Its 1989 annual report lists that contribution at more than $100 million - though several groups, including the Salt Lake County attorney's office, challenge that figure.
Salt Lake County Deputy Attorney Karl L. Hendrickson testified at one tax hearing that IHC's charitable contribution figure is misleading because it counts all contributions made to IHC twice - once when they're made and again when the money is spent.
"Donations are treated as part of the charitable gift when they are received. Additionally, when those same donations are expended, they are counted again as part of the charitable gift. This results in double-counting of the same money."
IHC officials say their hospital charges are 5 percent below comparable hospitals locally.
McKay isn't sure that's true.
"IHC claims they cost no more and often less than the other hospitals. Yet other people out in the community do their own analyses and find IHC costs more than other systems. So I don't know which is right."
IHC is nationally known. In fact, it's one of the largest two or three not-for-profit, not-religiously affiliated health-care corporations in the country, said IHC's Nelson. It owns and operates 24 hospitals, employs 15,500 people, and had a 1989 gross revenue of $789.3 million.
But the company's executive salaries have been a sore point in its home state, where the average personal income in 1988 was $12,180. The median family income that year was $30,000, according to the Utah Department of Employment Security.
"There are not a whole lot of billion-dollar companies in Salt Lake so we tend to be blown away by that kind of a (six-figure) salary. In Minnesota, Chicago, New York where so many companies have their home base, this would kind of be old-hat," Kohlert said. "For-profit hospital companies for comparable positions pay about twice as much as we pay. For-profit industrial companies pay about three times as much for the same size operations."
Still, IHC's compensation committee historically has struggled with what to pay its executives - apparently trying to find a balance between the conservative Utah community and attracting and retaining the most qualified executives. IHC hires consulting firms to guide its compensation board in determining salaries and bonuses.
"Our board, being very conservative, has said we are going to pay no more than the national average, but we expect significantly better than national average performance," Nelson said. "So the goals are very stringent in terms of accomplishing not a mediocre performance, but really being a model system - a pacesetter nationally for innovation in the quality of health-care deliverance."
McKay says he has worked in private industry and has seen how bonuses and incentives can reward increased profits but not quality and efficiency.
"If the basis of the IHC incentives is successfully cutting costs, that's one thing. But if the basis of the incentives is how much profit they make - and I know they don't like the word `profit' but that's what it is - then that's another thing."
IHC officials say their bonuses are based on meeting nearly two dozen goals - relating to the quality and cost of health care, plus meeting budgets.
One consulting firm believes IHC executives are underpaid for the goals they meet.
A recent report by Towers, Perrin, Forster & Crosby, a large national benefits consulting firm, for the IHC board of trustees states that "the organization could find itself at a severe disadvantage with regard to retaining key executives given the current below-market base salaries."
A national competitor agrees.
"When we look around to see who does things really well, we look to Intermountain Health Care most frequently," said Donald Wegmiller, president and CEO of Health One Corp. in Minneapolis.
Weigmiller said Parker "ought not to be very pleased" with his compensation package.
"If I was the CEO of a much-larger-than-the-average system - one generally regarded as one of the best, if not the best - I would want to be paid above the average and would be in talking to my board about a raise."
Weigmiller, CEO of Health One for 14 years, said his salary is 10-15 percent less than Parker's. But Health One is 60 percent the size of IHC.
"As proud as I am of Health One, I would never look anyone in the eye and say Health One has accomplished as much as Intermountain Health Care has covered," Weigmiller said. "These people (IHC executives) are not overpaid. If people are concerned about these numbers, they are barking up the wrong tree."
Average annual compensation for chief executive officers nationally:
- Health care (not-for-profit), bonus eligible
Annual revenues above $600 million....$437,300
- Health care (for-profit)....$726,000
- Financial services organizations
Assets of $4 billion to $5 billion....$820,000
- Durable goods manufacturing....$892,000
- Non-durable goods manufacturing....$923,000
- Service companies....$938,000
Source: Deloitte & Touche Executive Compensation Survey Report, August 1990