By David Robinson

New York's nonprofit hospitals paid millions in bonuses to executives and doctors despite a high-stakes battle to reduce health care spending.

As patients struggled to afford rising medical bills, incentive packages for top hospital executives reached seven figures and approached payouts at Wall Street banks.

Perks at the nonprofit hospitals included first-class plane tickets, chauffeurs and country club memberships. Severance and retirement payments mirrored golden parachutes awarded to for-profit corporate executives.

While New York's nonprofit hospital payouts are comparable to other states, they received tax exemptions and attract more scrutiny than for-profit competitors elsewhere, according to Michael West, senior attorney for New York Council of Nonprofits.

"Nobody envisioned that there would be this much capital in the nonprofit world," West said. "And as state government gets squeezed and local municipalities get squeezed, there has definitely been a push to see if something can be done to get more money from nonprofits."

The top-tier New York hospital payouts came despite efforts to curb healthcare spending growth after the Affordable Care Act in 2010, according to an analysis of 42 New York hospitals and health systems data.

At the time, federal regulators pushed hospital consolidation in search of efficiency, and the resulting mega mergers and partnerships transformed the marketplace. While the tectonic shift continues, hospitals’ highest-paid employees have reached unprecedented heights.

That includes at Northwell Health, the Long Island-based health system with $9.5 billion in revenue and 61,000 employees at 21 hospitals, which makes it the largest private employer in New York.

The staff and pay have increased along with demand for health care, including millions of previously uninsured patients added since the Affordable Care Act, noted Terry Lynam, the system's spokesman.

"The fact that we’re located in the New York market, with one of the nation’s highest costs of living, only increases the competitive pressures on compensation," he said.

Bonuses totaling $71 million went to about 400 hospital officials in the Lower Hudson Valley, New York City and other upstate communities in 2014 alone, the most recent data show. That is an average bonus of $177,500.

Of that same group, 112 workers each received at least $1 million total in salary, bonuses and other pay.

On picket lines, union workers have complained that exorbitant hospital pay drives up healthcare prices and reduces staffing at the pay scale’s bottom rung. Hospital officials have countered that the high pay is necessary to attract and retain top talent.

“If you’re running an organization that has a $500 million budget, you have to have someone with the wherewithal to run it and you have to pay for that,” said West of the nonprofits council.

Still, the ongoing expansion of massive regional hospital systems has pushed budgets into the billions, drawing increased criticism of pay inequality. Healthcare workers have joined efforts to increase minimum wages, and hospitals have said they can’t afford the sudden raises.

What follows is an exclusive analysis of thousands of pages of New York hospitals’ most recent federal tax filings in 2014. The probe included 42 of the state’s more than 200 hospitals and health systems.

Is bigger better?

Bonuses and payments spiked the highest among executives at the helm of major hospital consolidations, data show.

North Shore University Hospital’s President/Chief Executive Officer Michael Dowling topped the list in 2014. He was paid $10.1 million in salary, bonuses and other pay. That is compared to $3 million in 2010.

Dowling’s payments came as the Long Island hospital and its affiliated organization, then North Shore-LIJ, began its ongoing expansion.

The health system, now Northwell Health, has pushed into the Lower Hudson Valley, partnering with Northern Westchester Hospital in Mount Kisco and other regional providers.

North Shore University Hospital paid its top 20 officials $38.3 million in 2014. That is a 71 percent increase from the $22.3 million paid to the top 20 officials in 2010, federal tax data show.

Dr. Steven Safyer, president and CEO of Montefiore Medical Center in the Bronx, was paid nearly $4.9 million in 2014, including a bonus of $1.3 million.

That's an $800,000 increase from the $4.1 million he was paid in 2010. It came as Montefiore bought bankrupt hospitals in Mount Vernon and New Rochelle, and pushed its expansion northward into Westchester County, which now includes a partnership with White Plains Hospital.

Rachael McCallen, a Montefiore spokeswoman, noted the growth and ability to pay for top talent resulted in medical breakthroughs.

“Our executives navigate a complex healthcare environment making appropriate investments to ensure a forward-thinking, innovative and responsive care model that provides higher value, lower cost integrated care services,” she said.

McCallen, who responded to a series of questions sent to all 42 hospitals, noted that Montefiore executives’ bonuses are different than doctors and other employees, though much of the criteria overlap

"Executives receive incentive compensation only when board-approved performance objectives are achieved in strategic performance areas such as quality of patient care, patient experience and service, community benefit and mission, as well as operating performance," she said.

Still, performance-based standards seem to be the main factor separating Montefiore executive bonuses from doctors, who represented just five of the hospital’s 14 highest paid.

Montefiore paid $6.3 million in bonuses to its 14 top employees in 2014. That is a 34 percent increase from $4.7 million in 2010 bonuses, data show.

Staying competitive

The upward trend in hospital pay underscored an ongoing struggle to rethink incentives.

Government-funded health programs, such as Medicare and Medicaid, have slowly overhauled how taxpayer dollars flow to hospitals. The crucial issue has been incentivizing quality of care rather than quantity of patients.

New York data, however, suggests quantity remains king as revenues, employee pay and patient visits increased at hospitals from 2010 to 2014.

White Plains Hospital, for instance, reported revenue of nearly $426 million in 2014, up 40 percent from $298 million in 2010.

It paid 2,839 employees about $230 million in 2014, up 44 percent from the $159 million paid to 2,280 employees in 2010.

Julius Green, a partner at Baker Tilly, a New Jersey-based accounting firm advising 100 hospitals in the Northeast, attributed expansions and higher pay to growing competition nationally.

Green pointed to multimillion-dollar salaries at for-profit hospitals. They account for one-fifth of the market outside New York, which bans them.

“If you’re looking for the top doc in oncology, you’re competing with a for-profit hospital in Chicago or Detroit, and I guess the alternative would be that those nonprofit hospitals just can’t compete,” he said.

In addition to keeping pace with competitors, many of New York's nonprofit hospitals pointed to the financial burden of providing charity care, though amounts varied among institutions.

Blythedale Children's Hospital in Valhalla, for example, had 72 percent of its inpatient cases covered by Medicaid, the government program for low-income and disabled people. Blythedale is rethinking its compensation policies in the face of seemingly conflicting reforms trying to expand access to care while reining in hospital spending.

"As the (Affordable Care Act) mandates take effect, and the number of insured individuals rises, the need for skilled healthcare workers will surely increase as will the competition for that talent," said the hospital.

Federal regulators wouldn’t answer questions about the role hospital bonuses, incentives and pay raises played in failures to stem the rising tide of spending following the Affordable Care Act.

In 2014, healthcare spending nationally grew to $3 trillion, or 17.5 percent of the economy, federal data show. That is about $9,523 per person.

Meanwhile, some legislators in New York, and Gov. Andrew Cuomo, have quietly proposed allowing a limited number of for-profit hospitals on a trial basis to drive competition.

Nonprofit hospital lobbyists and healthcare unions defeated Cuomo's plan the past two years, citing the fact that many for-profit hospitals have even higher executive pay and bonuses.

But nonprofit hospitals’ rapid expansions in New York underscore the scope of top-heavy payouts despite the for-profit ban, the analysis found.

For example, the 112 top executives and doctors were paid $45 million in bonuses, and $26 million went to the next highest paid 517 employees.

The largest percentage of the 112 group was New York-Presbyterian Hospital, at 19. In total, they were paid $33.5 million, including $10.1 million in bonuses.

New York-Presbyterian, like others in New York City, increased the payouts as its affiliated system took over hospitals in affluent suburbs, including Lawrence Hospital Center in Bronxville.

In 2014, Dr. Steven Corwin was paid $4.6 million as CEO of New York-Presbyterian, and Dr. Robert Kelly was paid $3.3 million as president. That is nearly double the $4.3 million paid to Dr. Herbert Pardes as president and CEO in 2010.

Hospital tax wars

Squeezed financially by lingering effects of the recession, communities in other states are peeling away nonprofit hospitals’ tax exemptions.

Villages, towns and cities in New Jersey, Illinois and Indiana are essentially suing nonprofit hospitals for operating more like for-profit businesses, and executive pay is a crucial factor in ongoing legal challenges.

New Jersey’s hospital tax wars have legislators scrambling to reform laws, and the fight threatens to spill into New York and beyond.

Martin Allen, an attorney who has represented several New Jersey towns, noted that cases focused on showing how hospitals improperly paid staff and contractors.

The highest-profile case involved Morristown challenging its local hospital's tax exemption in 2015. A federal judge sided with the town. Since then, concerns about conflicts, transparency and oversight of other hospitals have mounted after the case resulted in Atlantic Health System paying the town $15.5 million under a settlement.

“Our courts have said (that), if you can follow the money into someone’s pocket, you may lose your exemption,” Allen said.

While New York’s law is different from New Jersey's, the risk of hospitals losing tax breaks and exemptions looms large over thousands of jobs.

West, the nonprofit group’s attorney, broadened the scope beyond hospitals. Reforming state tax law in New York, he said, requires overhauling an economic development system driven by tax breaks.

“Hospitals are run like a business and feel like a business, and your average citizen wouldn’t care if it was run by a for-profit or nonprofit,” he said. “Across the board, with any argument, everybody wants to see jobs, and the incentives to bring them in are huge for the healthcare campus or the shopping mall.”

Golden parachutes

As more reforms pushed to reduce wasteful spending, hospitals paid out six-figure severances and other retirement bonuses among select executives and doctors.

Health Quest Systems, which is based in Poughkeepsie and includes three hospitals, paid eight executives $2.3 million in severances in 2014, data show. Michael Weber, former CEO, had the biggest payment, at $817,449, in what the system described as a major executive restructuring.

Some severance payments at hospitals spanned several years, while many retirement funds and bonuses are built up over time, the data show.

Health Alliance Hospital in Kingston paid David Lundquist severance of $540,378 in 2014. He resigned the prior year as CEO and president of the hospital, which has since partnered with Westchester Medical Center.

The second and third highest-paid hospital executives in the review, Warren Hern and Dr. Mark Clement, were paid millions in deferred compensation, retirement payouts and bonuses after they led a merger of a regional health system in Rochester.

In 2014, Hern was paid nearly $7.5 million as president and CEO of Unity Health System, while Clement was paid about $5.3 as president and CEO of Rochester General Health System. They left the merged health system, now Rochester Regional Health, on Nov. 30, 2014, data show.

The health system cited similar payouts at comparable organizations as crucial to arriving at the $12.8 million payout. It noted an independent consultant reviewed market data and assisted hospital officials who approved the amount.

Most hospitals reviewed have similar compensation policies based on federal regulations.

Still, the hospital tax wars in New Jersey may affect nonprofit hospitals' compensation policies nationally.

In the Morristown case, a federal judge ruled the federal regulations on compensation were flawed. The decision was key in proving executive pay was too high, which is critical to challenging tax exemptions.

Industry insiders, including West, are concerned the legal precedent may gain traction in other states in the near future.

West noted that New York’s tax law is more ironclad than other states, meaning it would require a groundswell of legal challenges to reform. The state Constitution protects such exemptions, meaning any challenges would require municipalities to file lawsuits trying to peel away exemptions piecemeal, he said.

"You’re going to see push back from nonprofits saying that it isn't right and fair...out of respect for the public good they do," West said. "There’s a lot more at stake than the average health care consumer would realize."