Salaries on the Rise Among Salem Hospital’s Top Executives

Salem Health also has a Honolulu-based subsidiary, Willamette Valley Insurance Corp., which exists solely to provide insurance to its parent company
The Lund Report

November 21, 2012 -- President Norman Gruber made $877,502 in the hospital’s 2011 fiscal year, up 10 percent from the previous year. Chief Medical Offer William Holloway’s compensation climbed 11.4 percent, to $576,945. Neither man has fully recovered from pay cuts experienced in 2010, when salaries of the hospital’s top paid employees fell 15 percent. But the trend is clear, with paid officers at the nonprofit hospital getting an average raise of 12.4 percent last year.

Executives are not the only ones to see their checks bounce down then up in recent years, but a Lund Report review of tax filings suggests that rank-and-file employees of Salem Hospital saw deeper salary reductions than their bosses, and now have experienced more modest pay hikes.

According to documents filed with the IRS, workers at the hospital were paid an average of $50,268 in 2011, up 9 percent from the previous year. In 2010, their pay was cut an average of 19 percent, to $46,253. These calculations are very rough estimates and don’t adequately compare how any single worker’s pay may have changed. For example, if the hospital hired more doctors and fewer orderlies the average per-employee pay could rise even if each new doctor came on at a lower pay rate than his or her colleagues.  But Salem Hospital officials did not respond to a request to comment or participate in the reporting of this story, so tax-form-based estimates were the best available source of public information on how the nonprofit pays its employees.

Other findings from The Lund Report’s review of Salem Health and its affiliates:

  • Salem Hospital’s profit climbed 31 percent from the prior year, reaching $31.2 million in 2011, but its available cash plummeted. From $10.5 million at the end of 2010, cash fell to just $359,578 in 2011.
  • Liabilities at Salem Hospital have been relatively stable at just shy of $400 million for the past three years, but bond rating agencies appear to believe the hospital is slightly less credit worthy than in the past. Fitch Ratings and Standard & Poor’s both downgraded its credit rating from A+ to A (still a strong rating).
  • Salem Hospital officials have said they saved $8.8 million in the fiscal year that ended Sept. 30, 2012, but they have not clarified whether that represents a cut in spending from 2011 or a slower rate of growth. Spending climbed each year from 2009 through 2011, but by less and less each year.
  • West Valley Hospital, also owned by Salem Hospital, reported operating losses in 2007 and 2008, but has been profitable for the three most recently reported years. In fiscal year 2011, its profit margin was a healthy 6.4 percent, with profit at $1.5 million -- nearly triple the previous year.
  • On the quirky side: Salem Health has a Honolulu-based subsidiary, Willamette Valley Insurance Corp., which exists solely to provide insurance to its parent company. Willamette Valley is actually operated by Marsh Management Services, a Hawaiian business that helps companies self-insure without having to fully staff up their own insurance businesses.

“Salem Hospital is facing the same financial pressures as other large hospitals across the nation caused by the recession and changes in how consumers use health care,” the managers of the Salem Health Facebook account recently wrote on the website of the Statesman Journal newspaper. “This is considered the new normal in healthcare for the foreseeable future.”

Rumors don’t bear out

Among healthcare providers who compete directly or work closely with Salem Hospital, a number of whispered rumors have been circulating, and some in Marion County say the organization has a poor reputation. But in many cases, the record directly contradicts these whispers.

Community benefit?

On its 2011 tax form, Salem Hospital said that it provided $55.2 million in “community benefit” care – a figure that includes the cost of caring for patients who could not pay their bills, as well as costs associated with Medicare and Medicaid patients that are not fully reimbursed by those programs. The hospital may also have counted its portion of a state provider tax as a deductible expense – though exact details of this are not public record. One competitor to Salem Hospital, who spoke on the condition that they remain anonymous, said that this might amount to fraud, because a hospital that pay Oregon’s provider tax are then later reimbursed for that tax.

That belief is based on a misunderstanding of the state’s provider tax, said Judy Mohr-Peterson, director of medical assistance programs with the Oregon Health Authority. The provider tax is levied on hospitals based on net revenue – how much money they make off of all patient payments. Funds collected are then used to pay for Medicaid care at hospitals across the state. The full amount collected from this provider tax is ultimately paid back in Medicaid reimbursements, but there’s no guarantee that a specific hospital will make back the amount that it pays. A hospital that treats many Medicaid patients may receive more than it pays in the provider tax, while one that treats few of these patients may receive very little, Mohr-Peterson said.

Higher costs?

Some maintain that Salem Hospital charges too much for the care that it provides. According to Office of Oregon Health Policy and Research figures from 2009 – the most recent year data is available – its costs for common procedures are in line with other hospitals across the state. A typical appendix removal cost $12,803 at Salem Hospital, more than that at 26 reporting institutions and less at 15. Salem Hospital has the second-lowest rates in the state when treating mild or moderate strokes. It ranks 26th out of 51 for the cost of typical vaginal childbirth.

Hidden pay?

When President Norman Gruber’s reported compensation dropped from $1.2 million in 2009 to $797,881 in 2010, whispers began to circulate that Salem Health was using its several subsidiaries to hide his actual pay.

IRS regulations, however, require nonprofits to disclose all pay from related organizations in their tax filings. For Gruber to have earned more than reported in the documents reviewed by The Lund Report, Salem Health, Salem Hospital and their affiliates would have had to violate federal tax law.

Furthermore, hospital officials have said that Gruber’s pay in 2009 was abnormally high because he had opted to delay collecting a portion of his previous years’ salary – likely to minimize his tax exposure – and then had to take home that delayed compensation when Salem Hospital opted to no longer offer delayed compensation to executives.

TO LEARN MORE

For a more detailed look at the finances of Salem Hospital and the salaries of its top executives over the past three years, click here and here.

Image for this story by M.O. Stevens (public domain) via Wikimedia Commons.

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Comments

Hospitals should stop reporting "community benefit" and instead report "free care". Community benefit is a smokescreen. If they spend a few thousand dollars on a public seminar promoting some new moneymaker treatment, they write all of that off as community benefit when really its just advertising. If they think they deserve $200 for something that Medicare only pays them $100 for, they count that as community benefit. What the public really wants to know how much charity care they do. Hospitals don't like to report charity care because, by in large, it's less than they receive in tax breaks for being a not-for-profit. As this article points out clearly, you can be the CEO of a not-for-profit, and still get paid quite handsomely. Although, to his credit, Salem Health's CEO is currently at the low end of the pay scale for Hospital CEO's in Oregon.