LEWISTON — Central Maine Medical Center said it desperately needed money.
The year was 2006 and if CMMC didn't soon get the nearly $27 million the state owed it for providing care to elderly and poor patients, the Lewiston hospital told the Sun Journal it would have to cut community outreach programs. Stop performing expensive procedures. Possibly put off repairs. Likely fail to pay its own bills on time. The hospital said the situation was urgent.
CMMC's vocal desperation — and similar public pleas from the state's 38 other hospitals — eventually prompted Gov. John Baldacci to spend millions paying the hospitals back.
In the months surrounding CMMC's public plea, the hospital did borrow money to pay its bills. But it also quietly more than doubled its CEO's compensation to about $2 million, making him the highest paid hospital administrator in the state. And in an unusual practice in Maine and nationally, Central Maine Healthcare Corporation, CMMC's parent organization, spent tens of thousands of dollars to compensate its board of directors, a practice it started in 1999.
The hospital group defends the financial moves, saying, among other things, that it doubled its CEO's compensation because it was obligated to make up for unpaid retirement contributions and that his otherwise consistently high salary is necessary in order to keep him. And Central Maine Healthcare points out that it recently stopped paying its board members.
But CMMC and Central Maine Healthcare's decisions have raised eyebrows among legislators and others concerned about how much hospitals spend and how those expenditures may increase patients' bills. They question whether the hospital and its parent organization really need to pay such high salaries to their executives, and wonder whether CMMC and Central Maine Healthcare are as financially desperate as they sound when they lobby against trimming MaineCare reimbursements.
And they question whether the tax breaks and state money CMMC receives are helping the hospital provide for the community or provide for itself.
"Do you have to pay Central Maine Medical Center's CEO $1.9 million a year?" asked Alan M. Prysunka, executive director of the Maine Health Data Organization, an independent agency created by the Legislature in 1996 to collect financial health-care information. "I mean, couldn't that person get by in Lewiston with, like, a million?"
Those questions aren't confined to CMMC and Central Maine Healthcare.
Between 2006 and 2008, the most recent years that tax information is available, the Sun Journal found that nearly all of Maine's six largest hospitals and their parent organizations gave their CEOs compensation packages worth more than the $490,000 national average in 2006, some double, triple or quadruple that amount.
And high spending wasn't confined to CEO salaries. One of the smallest hospitals in the state paid a nurse practitioner nearly $210,000 plus benefits. One hospital spent $2.6 million on travel and conferences in one year. Another spent $660,000 on an ad agency.
Legislators and others are now considering what to do about it all.
"We need to look at, to scrutinize, how our dollars in the health care system are being spent," said Joe Ditre, executive director of Consumers for Affordable Health Care in Augusta. "Because once we start seeing that, I think we'll know what's worth it and what's not."
Maine has 39 acute care and specialty hospitals ranging in size from the 14-bed C.A. Dean Memorial Hospital in Greenville to the 606-bed Maine Medical Center in Portland. Lewiston's two hospitals, CMMC and St. Mary's Regional Medical Center, are the fourth- and fifth-largest, respectively, according to the Maine Hospital Association.
All of Maine's hospitals receive taxpayer money for giving care to poor and elderly patients. All but one — the New England Rehabilitation Hospital of Portland — are nonprofit. As nonprofits, Maine hospitals get tax breaks and are able to solicit tax-exempt donations. In return, the IRS requires that they pay their CEOs "reasonable compensation" — a vague guide based on the salaries paid by similar nonprofits or for-profit companies. They must also file special federal tax forms detailing their revenues and expenditures, and make those forms available to the public
The Sun Journal reviewed the most recent forms for the state's six largest hospitals and their parent organizations, as well as the three smaller hospitals and their parent organizations in Franklin and Oxford counties. We looked at CEO salaries, travel/conference expenses and wages for the highest-paid employees, as well as other spending practices.
Some of the most unusual financial moves were made by CMMC and Central Maine Healthcare.
CMMC is a 250-bed hospital with a cancer clinic, heart center, trauma center and LifeFlight base. In 2009 it employed 2,469 people full time and served 750,425 patients. Central Maine Healthcare is the parent organization of CMMC, Bridgton Hospital, Rumford Hospital, a number of doctors' practices and other health-care facilities. According to the most recent figures available, it employs 123 people.
In 2005-06, Peter Chalke was CEO of both CMMC and Central Maine Healthcare. He earned just under $790,000 — nearly $466,000 in salary and nearly $324,000 in benefits and deferred compensation, including retirement benefits.
A year later, his compensation more than doubled to about $2 million — $522,000 in salary and more than $1.4 million in benefits and deferred compensation. It was the largest compensation package of any hospital CEO in the state and four times the 2006 national average.
The year after that, in 2007-08, the hospital group decided it needed separate leaders for CMMC and its parent organization. Chief Operating Officer Laird Covey became the new president of CMMC, earning a total of $656,000 in salary and long-term compensation that year. The hospital said it did not fill Covey's old COO position.
Chalke became head of Central Maine Healthcare only, earning almost $1.2 million in salary, benefits and deferred compensation. He was no longer the highest paid in the state but was earning hundreds of thousands more than any other hospital CEO except the heads of Maine Medical Center in Portland and its parent organization, MaineHealth. But at $629,000, Chalke's deferred compensation remained the highest of any, including Maine Medical and MaineHealth. Covey's was the second highest at $358,000.
Through a spokesman, Chalke and Chief Financial Officer Charles Orne declined to comment for this story. They instead referred all questions to Paul Dionne, Central Maine Healthcare's board chairman.
Dionne defended Chalke's salary, which is set by Dionne's board. He said Chalke's compensation doubled in 2006-07 because the hospital group needed to make up for $929,000 in retirement contributions it hadn't made in the past. He declined to say how much Chalke or Covey make currently, even though it will become public information when Central Maine Healthcare files this year's tax forms.
However, Dionne said the board does try to compensate top executives well because it wants leaders who are experienced, efficient and capable visionaries. Like other Maine hospital groups, Central Maine Healthcare hires a consultant to survey executive salaries at similar hospital groups regionally and nationally. Central Maine Healthcare, Dionne said, tries to pay a base salary in the 60th percentile of those it surveyed — or better than 59 out of 100 others. Competition is stiff for good executives, he said. If Central Maine Healthcare didn't pay well, Dionne believes its leaders would go elsewhere.
"I think (Chalke) is a special talent," Dionne said. "We're lucky to have people like him. I think he's well worth it, as (former CEO) Bill Young was well worth it. When you're going through tough times, these are exactly the individuals you want as leaders."
He said Chalke and Covey received raises and bonuses this year, as did other employees. Of the hospital groups surveyed, Central Maine Healthcare was the only one to raise pay companywide throughout the recession without concession to the weak economy.
But while Dionne defended Chalke's compensation, others are outraged by it.
"Certainly, everyone needs to be compensated appropriately for their job, but what's appropriate? And is $2 million appropriate?" asked Ali Vander Zanden, health care organizer for the Maine People's Alliance.
In 2004, the MPA, a group of grassroots organizers, publicly protested the high executive salaries and benefits paid by Maine hospitals. It looked at 2001 and 2002 tax data and found the most highly compensated CEO then was Maine Medical Center's Vincent Conti at over $597,000. Chalke made $338,000.
In 2006-07, the year Central Maine Healthcare made up for Chalke's retirement contributions, his compensation was six times that amount. A year after that, back on track with retirement, his total compensation was triple what it was when the MPA protested.
"I think everybody knows their own salary and is able to use that as a comparing point," Vander Zanden said. "Most Mainers are making something much closer to $30,000 than $300,000, so three times that looks just outrageous."
Vander Zanden believes such compensation is more than unseemly. She believes it's financially irresponsible — and not just for CMMC and Central Maine Healthcare.
In 2007-08, Maine Medical Center paid its CEO $3 million, including a bonus given to him when he left. MaineHealth, the parent of Maine Medical, paid its CEO $1.2 million. Around the same time, salaries for some Maine hospital groups' highest paid employees also rose by hundreds of thousands of dollars.
"In a time of recession, when health-care costs are soaring, most of us are sort of expecting that everybody is cutting back because we're cutting back," Vander Zanden said of CEO salaries. "And so to look at a list of salaries that's totally outside the realm of my imagination just really made me wonder where all of our health-care dollars are really going."
Some legislators feel the same way.
"I understand they are executives overseeing many millions of dollars and many thousands of employees, but they are also members of communities and they need to be reflecting their communities," said Rep. Lisa Miller, D-Somerville, a member of the Appropriations Committee and the wife of a family doctor. "The same arguments (for high salaries) are made, of course, for financial system executives, investment bankers, Wall Street people. But they are losing public support."
So far, though, hospitals are not losing public support. Some legislators believe that's because the general public is not aware of how much CEOs make.
Legislators, however, are.
"As we struggle to find ways to control health-care costs, these huge salaries do raise eyebrows at the State House and have led to lots of conversation among Appropriations Committee members," said Rep. Peggy Rotundo, D-Lewiston.
Legislators say some hospitals encourage employees and volunteers every year to lobby the state for better MaineCare funding. Employees tell legislators they're afraid their hospital will cut jobs if it doesn't get more money. Some volunteers worry hospitals are so cash-strapped that they're going to close if the state doesn't help.
"This past year I heard from an elderly (CMMC) volunteer who was quite distressed because he was afraid it meant he was no longer going to be able to volunteer at the hospital, which is something that's very important in his life," Rotundo said. "I assured him that we were not talking about a situation where the hospital was going to have to close."
Some Maine hospital groups have recently trimmed executive pay in an effort to save money in this harsh economy and to stave off cuts that would affect lower-paid employees or patients. MaineGeneral Health in Augusta, for example, temporarily slashed its CEO's salary by 17 percent in 2008 and cut the salaries of other top leaders by between 5 and 10 percent. It reinstated their full salaries in 2009, but at 2007 levels.
"Our style here has always been one of shared sacrifice," said Scott Bullock, CEO of MaineGeneral Health, the parent organization of MaineGeneral Medical Center.
In 2009, St. Mary's Health System, the parent organization of St. Mary's Regional Medical Center, temporarily cut the salaries of its CEO and other top leaders by 11 percent, its managers by 6.5 percent and its salaried employees by about 3 percent. Western Maine Health, parent of Stephens Memorial Hospital in Norway, suspended raises, including those for top executives. Last year, Franklin Community Health Network, parent of Franklin Memorial Hospital in Farmington, did the same.
At Central Maine Healthcare, Dionne said his board would cut elsewhere before it touched CEO pay. It wouldn't want to risk Chalke leaving for more money.
"You've got to keep your leadership," he said.
Board members profit from nonprofit
Central Maine Healthcare's regard for its leadership also extends to its board members.
Nonprofit hospital boards are generally unpaid, both in Maine and nationally. Members consider their time on the board as community service. Hospitals consider those board members to be dedicated volunteers.
"We've never had paid board members," said Dan Coffey, executive vice president and chief financial officer for Eastern Maine Healthcare Systems, parent organization for Eastern Maine Medical Center in Bangor. "I think most board members who serve on the boards of not-for-profit organizations look it as a community benefit, helping an organization in their region or community. I haven't really heard of any board members who have expressed, 'Yeah, gee, I'll serve on a board if I get paid for it.' I just haven't heard that in our industry."
None of Maine's six largest hospitals or their parent organizations pay their board members — except for Central Maine Healthcare.
For the past 10 years, Central Maine Healthcare has paid hundreds of thousands of dollars into a fund for its board. Members of CMMC's board, which is separate from the Central Maine Healthcare board, have never been paid
Since 1999, when Bill Young was CEO, the hospital group has contributed to a life insurance plan for Central Maine Healthcare board members. They could take out loans against that money. And when they left the board, they could either draw money from that plan or leave the lump sum to a beneficiary upon their death. Regardless of which choice the member made, part of that life insurance payout went back to Central Maine Healthcare when the member died, reimbursing the organization fully for the money it spent on the insurance.
Board members originally approved their own pay, Dionne said, because "They wanted to get the right people and keep them around." The board set its own compensation rates. In the beginning, each member had about $5,000 set aside each year and the chairman had $6,000, Dionne said. There were annual increases.
Kathie Leonard, the CEO of Auburn Manufacturing Inc. in Mechanic Falls, protested the pay policy when she became chairwoman a couple of years later. At the time, the Enron scandal was putting the spotlight on corporate governance and CMMC was trying to raise money for its new heart center. It wasn't illegal for a nonprofit to pay its board members, but she didn't think it made them look good.
"The hospital is a very good institution, does a lot of good things in the community, for the community," she said. "This was just one of those things that could be an impediment. The question I asked the board members as I talked to them was, 'What would you do if the Sun Journal called you and asked you why we're getting paid this amount of money?' That question in my mind made me feel uncomfortable."
At her behest, the board looked at the policy, bringing in experts and consultants to discuss the situation. The issue was contentious, with some board members balking at losing their compensation while others railed against being paid for what they considered voluntary community service work. In 2003, the board narrowly voted to keep its pay.
Leonard resigned soon after. For three years of work on the board she earned $34,000 — almost double what Dionne said board chairs were originally slated to earn. Leonard said she made sure it was all returned to the hospital group.
"I feel good about what I did," she said.
Others over the years have opted out of the payment plan. In 2007-08, five members were paid nothing while five others earned tens of thousand of dollars. In tax paperwork, all members were listed as working 10 hours a week.
Recently, the pay issue came up again. Again, the board consulted experts and reviewed the policy. Again, the issue was contentious. This time, in August 2009, members voted unanimously to stop their compensation. Dionne said the board no longer felt comfortable taking money from the hospital group. It also wanted to set an example.
"Cuts will probably be inevitable in the future," he said. "We thought, 'Hey, if there are going to be cuts, they better be from the top down.'"
The hospital group agreed to keep paying the premiums on the life insurance plans so it would eventually get its money back when the members died, Dionne said. When questioned, he said current members would no longer be eligible for payouts when they retired or upon their death. After further questioning, he said members instead received payouts now. Five current members and one former member got money. Dionne said he did not know how much each payout was but that his amounted to $40,000.
The same day the board agreed to stop compensation, it voted to spend hospital money to pay members' taxes on those payouts. For Dionne, that was another $20,000. He said he didn't know how much the others received for their taxes.
Past findings, new findings
CMMC and Central Maine Healthcare aren't the only hospital groups that have been scrutinized for their financial decisions.
In 2004, the Maine People's Alliance found several nonprofit hospitals owned for-profit businesses, including one that ran a for-profit collection agency — raising conflict of interest concerns when it came to patient bills. It also found some executives were drawing salaries from more than one part of a hospital group, nonprofits were sending money to their for-profit subsidiaries with little public accounting, and some financial moves were all but hidden from public scrutiny.
"When large corporations receive public benefits, for example tax-exempt status, in order to provide a public good, there is no reason why they should be able to shield some of their actions and incomes from public scrutiny," the MPA report said. "This hospital shell game and lack of transparency does not reassure the public that they are doing everything they can to contain costs, that they are providing adequate charity care, that they are not using for-profit subsidiaries for the wrong reasons, or that the uninsured are not paying excessive fees."
Six years later, the Sun Journal's review of tax filings revealed some new financial decisions made by hospitals that, on the surface, could raise questions.
The state's six largest hospitals and their parent organizations spent $9 million a year on travel and conferences, $2.6 million of that by Maine Medical Center. Mercy Hospital spent $630,000 on an ad agency one year and $660,000 the next. Rumford Hospital, a 25-bed rural hospital, paid a nurse practitioner nearly $210,000, plus benefits, making her one of the highest paid employees there.
Those hospitals defend their decisions. Maine Medical said it scrutinizes the money it spends on travel and conferences and tries to limit spending, but its doctors and other employees often need training to keep their skills up and their certifications current.
"We think that's an important aspect of insuring quality," said board Vice Chairman Chris Emmons, adding that for the size of the hospital, "the number, relatively speaking, is pretty low."
Mercy Hospital said it paid Portland-based Burgess Advertising and Marketing nearly $2 million over two years because the hospital didn't have a large marketing department of its own and so relied on the agency to handle marketing, ad creation, ad placement, ad campaigns and events. Mercy paid Burgess, not the local TV station, when it bought a TV ad. It paid Burgess when it needed brochures. It paid Burgess when it needed to pull together an event. The work, the hospital said, is worth the cost.
"To put it into perspective, it actually is less than half of 1 percent of our total expenses," said spokeswoman Diane Atwood. "So it's all relative."
Rumford Hospital is a member of Central Maine Healthcare. In an e-mail, Dionne said the nurse who earned nearly $210,000 "has a base salary with reasonable annual increases. She also is reported to be a very productive provider." He said she also earned extra pay because she covered for doctors when necessary.
Legislature steps in
Over the years, lawmakers have grown concerned about how nonprofit hospitals spend their money and how much of that spending is done out of public view.
Around 2006, as part of the state's Dirigo insurance initiative, the Legislature required hospitals to regularly report some of their financial information to the Maine Health Data Organization. That data has been posted to the organization's Web site.
In 2007, also as part of Dirigo, the Legislature tried to control health-care costs by capping hospital profits at 3 percent per year. That cap was voluntary. Hospitals were also supposed to tell the Legislature's Health and Human Services Committee whether they adhered to that cap. Reporting was mandatory. The committee expects to receive a comprehensive group of reports in another two weeks.
In 2009, a new state law required the Department of Health and Human Services to post hospitals' tax forms on its Web site so the public could easily access them. That Web page is up, though the tax forms are not posted for every hospital, and parent organizations are not named or required to have their tax forms posted.
That same year, Sen. John Nutting, D-Leeds, sponsored a bill that would have reduced hospitals' MaineCare reimbursements by the amount they spent on advertising. That bill died in committee.
And also in 2009, the Legislature created a working group to look at hospital finances and recommend ways to make those finances more transparent. That group is slated to report to the Health and Human Services Committee this winter. Among the recommendations under consideration:
• Require parent organizations to submit financial information to the Maine Health Data Organization for posting to its Web site.
• Require hospitals to report advertising expenses to the Maine Health Data Organization.
• Require hospital groups to report transfers of $100,000 or more between entities, including nonprofit hospitals and their for-profit subsidiaries.
• Require hospitals to report to the Maine Health Data Organization every hospital position with salary and benefits over $150,000.
Sen. Lisa Marrache, D-Waterville, sponsored the bill that created that group. She is also a doctor.
Since hospitals have dense and complex financial structures and the federal tax forms required for public reporting do little to simplify the information, she believes the average person would find it very difficult understand what a hospital does with its money. Yet, she said, through taxes and hospital bills, "We are all paying for it."
Joe Ditre, with Consumers for Affordable Health Care, is a member of that working group. Concerned about everything from CEO salaries to the money spent on hospital construction, he agrees with Marrache. He would like the group's recommendations enacted and he would also like hospitals to take it upon themselves to change.
"These are essential services. This is not an industry that should be building profits and building empires. This is a service industry that is intended to provide quality care at an affordable rate to people in the community," he said. "I think they've got their priorities misdirected or backwards. They should be promoting a value that 'We believe in putting every dollar we can into providing good, high quality, affordable care to the members of our community.'"
But even as legislators and others grow troubled over costs, Dionne said that from his point of view at least, cost isn't everything. He points to a long list of accreditations, certifications and awards earned by the hospital group, including a 2008 national award for LifeFlight, level two trauma center certification for CMMC, rare gold level recognition from the Department of Health and Human Services for CMMC's high organ donation rate and high customer satisfaction ratings for all three of its hospitals.
"If the costs are high but the performance is excellent and the results are outstanding then it's a wise investment," Dionne said in an e-mail.
CMMC owns insurance company in Cayman Islands
For more than a decade, Central Maine Healthcare has self-insured its doctors and hospitals against malpractice through its own CWM Insurance Ltd. It located that company — a non-taxable foreign corporation — in the Cayman Islands.
Board chairman Paul Dionne said the hospital group established CWM Insurance because it could self-insure for less money than traditional insurance cost and it set CWM off shore because the Cayman Islands have spent decades developing one of the best support systems in the world for self-insurance companies, including accountants, lawyers, actuaries and other experts. He said there are about 770 similar insurance groups based in the Cayman Islands, including about 230 related to health care.
Maine watchdog groups have been leery of hospital subsidiaries located in foreign countries. The Maine People's Alliance first questioned the practice in 2004, citing it as one of several "black box" or hidden items it discovered by scouring Maine hospital tax forms. At the time, it said hospitals did not do enough to publicize their financial practices or to explain them.
"Without a complete financial picture of Maine's largest nonprofit hospitals, it is difficult, if not impossible, to tell whether the hospitals really are on the same side as the very people they say they serve," the report said.
Today, the MPA feels such financial information is still largely hidden from the public. Central Maine Healthcare's Cayman Island's affiliation, for example, was noted only on Page 7 of its 40-page tax document, under Question 91b — and then only with "CJ," an IRS foreign country code.
"For which we really have no data whatsoever," said Amy Halsted, who was MPA's health-care organizer then and is now the group's communications director. "The public should have the right to scrutinize how they're spending the money that the public is giving them, both in terms of tax breaks and the amount of public dollars we spend at hospitals in Maine."
Despite the criticism that hospitals should be more upfront with the public about their finances, the practice of establishing an insurance company off shore is not uncommon. U.S. businesses and nonprofits do it to save money in fees, taxes and insurance premiums and because the Cayman Islands, Bermuda and other places have professionals who know how to deal with such self-insurance companies.
Dionne said creating CWM and setting it in the Cayman Islands was simply a financial move meant to save the hospital group money on malpractice insurance, nothing shady or hidden about it.
"This was an economically sound decision for our institution," he said in an e-mail.