The top Community Health Systems executive made less than half as much in 2017 as he did in 2015—even though his performance bonus has grown.
Wayne T. Smith, board chair and CEO for Community Health Systems (CHS), based in Franklin, Tennessee, has seen his total annual compensation drop dramatically in recent years as the company he’s helmed more than two decades has faced financial troubles.
Smith, who earned more than $10.4 million in 2015, was compensated $4.9 million last year, according to documents CHS filed Thursday with the Securities and Exchange Commission (SEC).
His total compensation included $812,000 in non-equity incentive pay for 2017, which was significantly higher than the $640,000 in incentive pay he earned in 2016 and the $400,000 he earned in 2015.
But this swelling bonus—which is tied to several specific performance metrics—was eclipsed by the plummeting value of CHS shares.
Smith was awarded stocks valued at nearly $7.3 million in 2015, about $2.3 million in 2016, and less than $1.4 million in 2017. Since executive officers have been granted about the same number of restricted shares each year since 2014, this decline in value was the result of a declining stock price, the company noted in its SEC filing.
Company shares hit an all-time high in summer 2015, trading above $52 apiece, before they took a nosedive that leveled out below $5 in late 2016. They have continued to trade below $7 throughout 2018, as CHS scrambles to execute what it calls a “portfolio rationalization strategy.”
That strategy includes selling off CHS hospitals to competitors in order to pay down debt. But these turnaround efforts have brought some unwelcome consequences.
The company is in arbitration with Quorum Health, which it spun off in 2016, over disputes related to transition services agreements. And it was just sued by Microsoftfor allegedly violating software licenses amid its divestitures.
The documents CHS filed Thursday with the SEC notify investors of the company’s annual stockholders meeting to be held May 15. They also include a CEO pay ratio disclosure newly required by the Dodd-Frank Act.
Smith’s total compensation of $4.9 million last year was 80-times as much as that of the median CHS employee, who earned about $61,600, according to the filing.
The incident affected EMR systems but not patient care, the system said.
The computer networks at Allina Health facilities are operating again after an eight-hour overnight interruption earlier this week.
The systems were restored early Thursday morning, but the Minneapolis-based nonprofit system—which operates hospitals and clinics in Minnesota and Wisconsin—is still trying to make sense of what happened.
“The electronic medical record and other systems were affected. At this point the cause of the outage is still under investigation,” spokesperson David Kanihan told HealthLeaders Media in a statement Thursday, noting that workers followed the proper protocols to handle such an outage.
“Caregivers had access to the information for each patient from the medical record system as part of the ‘downtime’ procedures, and therefore were able to continue to provide safe care,” Kanihan said. “Some equipment had to be operated in a manual mode, but staff are trained to do so when necessary.”
Prescription drug dispensing machines were among the network-connected systems that Allina switched into manual mode, The Star Tribune reported.
Moody’s Investors Service outlined the strategies underlying the rapid M&A activity driving much of the change underway in healthcare delivery.
UnitedHealth Group is the most vertically integrated health insurer today “by far,” thanks in large part to mergers and acquisitions it began undertaking several years ago, according to a report released Thursday by Moody’s Investors Service.
UnitedHealth picked up Catamaran, a pharmacy benefits manager (PBM), for $13 billion in 2015, before snatching up physician groups, surgery centers, and other businesses in a spree of acquisitions last year, the report notes.
But the clear leader in vertical integration now has competitors nipping at its heels, as fellow insurers have latched onto PBMs of their own.
Dean Ungar, a Moody’s vice president and senior analyst, said the uptick in vertical M&A activity in this sector of the healthcare market has been driven primarily by a desire to control costs.
“The growth in medical costs has been a great challenge to the industry,” Ungar said in a statement. “Medical costs are impacted by medical cost inflation, changes in the level of utilization, and the use of inpatient versus outpatient services and pharmacy costs, which are estimated at 20% of total medical costs.”
The report outlined three main reasons for health insurers and PBMs to merge:
1. Cost savings
The desire to keep costs down is a major factor pushing companies to combine forces, but it may not be a good enough reason on its own to justify certain of these vertical mergers, according to Moody’s.
“If a health insurer already contracts with a large PBM as a client, it should already be benefiting from superior purchasing power and scale,” the report states, adding that existing PBM contracts should also be giving insurers an informational advantage.
“That said, there may be incremental value in receiving and owning access to timely and complete data, including data extending beyond their own insureds,” the report states.
2. Freer cash flow
Insurers may also look to PBMs as an attractive way to diversify their business and gain access to additional perhaps less-restricted revenue streams, according to Moody’s.
“The revenue and earnings of a national PBM (as well as provider practices) are not regulated, unlike an insurer’s health plan subsidiaries,” the report states. “The PBMs, therefore, can be a source of significant, unregulated revenue, earnings and cash flow.”
Aetna generated $61 billion in revenue last year. Assuming its acquisition by CVS Health is finalized, it will be part of an organization with $240 billion in revenue, which is more than UnitedHealth has, according to the report.
3. Pressures on PBMs
“The PBM model has been under pressure from increasing demands for more transparency about business practices such as drug manufacturer rebates and volume discounts,” the report states.
“Transparency inevitably reduces margins as clients, in turn, demand a better deal as well.”
It remains unclear, the report adds, whether a standalone business will be able to compete in a future with other organizations that have combined PBMs and insurers into joint operations.
Universal Health Services paid its top executive a base salary higher than peer companies on account of his tenure as CEO, his value as the company’s founder, and his status in the industry, the company said.
The median total compensation for an employee of Universal Health Services (UHS), which is headquartered in King of Prussia, Pennsylvania, was just shy of $40,000 last year.
The company’s board chair and CEO, meanwhile, made 541-times that amount, according to documents UHS filed Thursday morning with the Securities and Exchange Commission (SEC).
Alan B. Miller, who founded UHS in 1979, earned more than $21.6 million in total compensation last year, including a base salary of more than $1.6 million and nearly $16 million in stock options.
The 541-to-1 pay ratio—the disclosure of which is newly required under the Dodd-Frank Act—means the median UHS employee earned 0.18% as much as Miller did in 2017. And it is markedly higher than the ratios disclosed to the SEC recently by other hospital operators:
Tenet Healthcare Corporation Executive Chairman and CEO Ronald A. Rittenmeyer's total compensation was annualized at $5.2 million last year, which was 102-times as muchas the median worker’s compensation of about $50,900.
Encompass Health President and CEO Mark J. Tarr, MBA, earned more than $4.9 million in total compensation last year, which was 134-times as much as the median worker’s compensation of about $36,700.
HCA Healthcare Chairman and CEO R. Milton Johnson earned nearly $17.3 million in total compensation last year, which was 312-times as much as the median worker’s compensation of less than $55,400.
The ratio between Miller’s compensation and that of the median UHS employee fell between the 75th and 90th percentiles among companies with revenue of $5-15 billion, the company noted in its filing, citing a survey of 365 public companies.
But it is important to note that companies have some discretion in how they calculate these ratios.
“As such, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios,” UHS said in its filing.
That caveat could be especially important to keep in mind with the UHS pay ratio disclosure because UHS included part-time and temporary employees in its calculation.
Even if you set the ratio aside, however, Miller’s compensation still ranks on the high end.
In assessing the UHS executive compensation plan last year, the company identified seven peers with median revenues of $6.3-10.4 billion: Acadia Healthcare Company, Community Health Systems, HCA, Iasis Healthcare, Kindred Healthcare, LifePoint Hospitals, and Tenet Healthcare Corporation.
Among those peers, Miller’s base salary ranked in the top quartile, the company said in its filing, citing “his long tenure in the position, his value as the Company’s founder, his status within the healthcare industry and his performance” as the justifications for his pay.
Editor's note: This story was updated to clarify the way Tenet Healthcare Corporation calculated its CEO pay ratio on an annualized basis.
Expect the current trend to continue if proposed changes come to fruition.
About 11.8 million people signed up for health insurance on Affordable Care Act (ACA) exchanges during last fall’s open enrollment period, according to a final report released Tuesday by the Centers for Medicare and Medicaid Services (CMS).
The number came close to last year’s 12.2 million sign-ups, despite concerns that a reduction in resources and confusion over the ACA’s future could dampen enrollment.
Perhaps the most interesting numbers in the final report, however, were the ones indicating who paid how much for these plans. Although the average subsidized premium paid by consumers fell, the cost to the government rose.
The average premium for an exchange plan rose 30% from $476 in 2017 to $621 in 2018, according to the report. But the majority of consumers, about 83%, had their premium costs offset by tax credits.
Those average tax credits rose dramatically from $383 last year to $550 this year, driven at least partially by the Trump administration’s decision last fall to halt cost-sharing reduction (CSR) payments.
Doing the math
Among consumers who receive tax credits, the average premium is $639 for 2018, and the average tax credit is $550, leaving an average subsidized premium of $89 per month to be paid by the consumer, according to the report. That’s down 16%, from the $106 average subsidized premium last year.
The nearly 1.3 million consumers who don’t receive tax credits have an average premium of $522 per month.
“Taken together these data suggest that more affordable healthcare options are needed. Especially for those forgotten women and men who are not eligible to have their premiums reduced by tax credits,” said CMS Administrator Seema Verma in a statement.
More to come
Verma touted a rule recently proposed by CMS to ease restrictions on short-term, limited-duration (STLD) insurance as an alternative for those who can’t afford their premiums. The administration has also proposed increasing access to association health plans (AHP).
Both STLD and AHP coverage options—which are exempt from some of the ACA’s requirements—are expected to entice healthier consumers away from exchange plans, leaving sicker consumers behind and ultimately resulting in even higher premiums for ACA-compliant plans.
So, if the Trump administration follows through on the plans it has proposed, the trend exhibited in the open enrollment final report will likely continue.
These comments were among tens of thousands submitted in response to the HHS Office for Civil Rights proposal to enhance protections for healthcare workers with conscientious objections.
A proposal to enhance legal protections for healthcare workers who decline to help provide medical services that contradict their religious or moral beliefs garnered more than 72,000 public comments online, all of which have now been released publicly.
The comments represent a diverse cross-section of stakeholders, from patients to providers, advocates, special interest groups, and others.
Some commenters—including at least one healthcare executive—offered full-throated endorsements of what the Health and Human Services (HHS) Office for Civil Rights (OCR) plans to do with its newly created Conscience and Religious Freedom Division. Others offered qualified support, outlining tweaks they hope to see in the final rule.
Others, meanwhile, urged HHS OCR to back away entirely from the plan, arguing that the proposal would contradict the office’s mission to expand healthcare access.
Here are seven of the comments submitted by healthcare executives:
1. OSF HealthCare
Chris Manson, vice president of government relations for OSF HealthCare, a Catholic system headquartered in Peoria, Illinois, wrote that OSF “strongly commends” HHS for the proposal.
“For over four decades, through enactments such as the Church Amendment and other pieces of Federal Legislation, Congress has sought to ensure that health care institutions and medical professionals will not have to choose between abandoning medicine and violating their conscience, particularly with respect to abortion and sterilization,” Manson wrote.
“Unfortunately, in recent years this enforcement has been practically nonexistent. As we have seen in States like California and New York, lack of commitment on the Federal level can result in discrimination and instances where faith based providers are forced to violate their deeply held beliefs or be prevented from providing services all together. This is an unacceptable choice that needs to be corrected. These proposed regulations will do just that.”
2. Ascension
Rev. Dennis H. Holtschneider, CM, executive vice president and chief operations officer for St. Louis-based Ascension, the largest nonprofit system in the U.S. and the largest Catholic system in the world, signed a comment on behalf of his organization.
Ascension “applauds” the efforts by HHS OCR to protect religious freedom, “especially when it comes to healthcare workers and organizations that are called by their faith to serve all persons, especially those who are poor and vulnerable,” Holtschneider wrote.
As a member of the Catholic Health Association (CHA)—which submitted its own comment separately—Ascension “wholeheartedly endorses” the CHA statement of inclusion, Holtschneider wrote. That statement includes a commitment to serve patients in need regardless of “race, color, national origin, sex, age, or disability, or any other category or status.”
Without directly addressing concerns that the HHS OCR proposal could lead to more discrimination against LGBT people, Ascension’s comment outlined several tweaks it would like to see in the final version and agreed with the American Hospital Association’s comment that some of the reporting requirements in the draft proposal may be unnecessary.
3. Aurora Health Care
Cristy Garcia-Thomas, chief experience officer for Milwaukee-based nonprofit Aurora Health Care, a Catholic system that recently merged with Chicago-based Advocate Health Care, urged HHS to refrain from finalizing any provisions that would result in groups of patients being denied healthcare.
Aurora both respects the moral and religious beliefs of its healthcare workers and refuses to tolerate discrimination against patients on the basis of “race, creed, color, national origin, ancestry, religion, sex, sexual orientation, gender identity, marital status, age, disability or source of payment,” Garcia-Thomas wrote, citing discrimination against LGBT people in particular as linked to poorer health outcomes.
“We are committed to fostering a culture of inclusion that embraces and nurtures our patients, colleagues, partners, physicians and communities,” she added, arguing that Aurora’s existing policies already “strike the right balance between caregiver and patient rights.”
Accordingly, additional intervention by the federal government is unnecessary, Garcia-Thomas wrote.
4. BJC HealthCare
David L. McCune, vice president of corporate compliance for St. Louis-based BJC HealthCare, focused on two key technical recommendations.
“We are concerned that the proposed regulatory regime places unnecessary additional administrative and other burdens upon employers, while also inadequately considering the rights of patients and responsibilities of health care entities (‘employers’) to provide appropriate and necessary patient care, in part because it creates potential inconsistencies between existing, well-established bodies of federal and state anti-discrimination law,” McCune wrote.
First, HHS OCR should use language from Title VII of the Civil Rights Act and Equal Employment Opportunity Act (EEOA) when regulating matters pertaining to religious or conscience-based discrimination, McCune wrote. In particular, the final rule should adopt the concepts of accommodation and “undue hardship” found in the EEOA.
Second, the final rule should clarify its relationship to other laws, McCune wrote. It should defer to state and local religious antidiscrimination protections if they are stronger than federal protections, and it should permit providers to follow state enforcement and compliance regimes in certain circumstances, he argued.
5. Christiana Care Health System
Bettina Tweardy Riveros, chief health equity officer for Christiana Care Health System in Newark, Delaware, warned that the HHS proposal could undermine her system’s commitment to non-discrimination.
“Our mission is well known to our 11,600 employees, as is our commitment to ensuring that our caregivers’ needs are met,” Riveros wrote in a comment. “To that end, Christiana Care has developed and implemented policies and procedures that balance the provision of conscience protections and other reasonable accommodations for the religious beliefs of our caregivers with our obligations to provide appropriate and necessary care to our patients.”
The “open-ended protections” for providers to decline to provide care on the basis of religious objections could force Christiana to make significant revisions to its existing policies and procedures, and it could jeopardize Christiana’s ability to continue fulfilling its mission, Riveros wrote.
6. Anne Arundel Medical Center
Maulik Joshi, DrPH, executive vice president of integrated care delivery and chief operating officer for Anne Arundel Medical Center in Annapolis, Maryland, raised several concerns about the HHS proposal.
“Simply put, this proposed regulation is bad policy and will hurt our patients and communities,” Joshi wrote. “Hospitals and health systems exist to treat patients and provide them with access to the information they need for treatment.
“Entities that serve patients must be committed to respecting both the values of health care workers and the patients and the communities they serve in a way that allows for the delivery of care. The sweeping exemption and its undefined boundaries of the proposed regulation will have a chilling effect on the provision of life saving and medically necessary healthcare.”
7. Boston Medical Center
Kate Walsh, president and CEO of the academic nonprofit Boston Medical Center (BMC), wrote a seven-page letterurging HHS to withdraw its proposal or at least narrow its scope, clarify its relationship to other laws, and reduce the burden it places on providers.
“The broad and undefined nature of the proposed rule gives individual providers’ beliefs priority over life-saving patient care and threatens to prevent the provision of services to patients in need,” Walsh wrote. “The lack of definition, structure, and guidelines will leave health care providers without standards and structures to guide the provision of necessary care to the most vulnerable populations, including LGBTQ people.”
Beyond unanswered questions of legality and clarity, the proposal fails to appreciate the existing protections state and federal laws provide healthcare workers to be free from religious discrimination, Walsh wrote, noting that BMC and many other hospitals already have policies in place to ensure such rights are respected.
“The existing protections are meaningful and familiar to health care providers who have navigated these personal obligations alongside their commitment to providing seamless, respectful health care to patients,” Walsh wrote. “There is no need to augment the existing protections.”
The increase doesn’t account for any adjustment for the underlying coding trend, which CMS expects to increase risk scores.
The Centers for Medicare and Medicaid Services (CMS) announced Monday that Medicare Advantage plans will receive a 3.4% payment increase in 2019, significantly more than the 1.84% raise that had been suggested in the advance notice.
The increase was among several policies adopted to provide beneficiaries more choices, more affordable options, and new benefits, CMS said.
The expected average increase in revenue does not take into consideration any adjustment for the underlying coding trend, which CMS expects to increase risk scores by 3.1% on average.
CMS Administrator Seema Verma also announced Monday that CMS finalized policies to lower prescription drug costs and offer additional choices.
“The steps we are taking will drive more competition among plans and pharmacies to meet the needs of seniors and lower costs,” Verma said in a statement.
The administration is finalizing a number of policies designed to reduce drug prices, according to the statement, including the following:
The maximum amount low-income beneficiaries pay for biosimilars will be reduced.
Certain low-cost generics will be eligible for substitution onto plan formularies at any point during the year.
The requirement that certain Part D plans must “meaningfully differ” from one another will be removed.
The “any willing provider” requirement for pharmacies will be clarified in a way that increases competition.
Furthermore, the agency said it has reinterpreted standards for Medicare Advantage health-related supplemental benefits to include “non-skilled in-home supports and other assistive devices.”
Insurers are exploring vertical deals after their horizontal merger plans were blocked. Their odds are looking much better this time around.
A year ago, four major health insurance companies were reevaluating their business strategies after their plans to pair off and form two even bigger insurance companies were blocked to preserve competition.
Within the first six weeks of 2017, one federal judge blocked Aetna’s plan to buy Humana, and another blocked Anthem’s plan to buy Cigna. Each judge cited antitrust laws, saying the deals could harm consumers.
Today, however, it seems most of the four insurers have moved on to new potential partners—with verticality in mind.
Citing unnamed sources, The Wall Street Journal reported Thursday evening that Walmart is “in preliminary talks” to purchase Humana. This news comes after CVS Health announced plans in December to buy Aetna for $69 billion and Cigna announced plans in March to buy Express Scripts, a pharmacy benefit manager (PBM), for $54 billion.
The prospective Walmart-Humana deal looks an awful lot like the CVS-Aetna arrangement insofar as each transaction would combine a PBM with pharmacies and health insurance.
That seems like a logical setup for Walmart, according to J. Mario Molina, MD, president of Golden Shore Medical Group, which operates clinics in four California counties.
“Walmart already has a massive pharmacy infrastructure & has tried venturing into in-store clinical care,” Molina, who was president and CEO of Molina Healthcare Inc. until last year, wrote in a tweet Friday. “Plus, with 1.5M U.S. employees, it makes sense when trying to optimize healthcare costs.”
Looking to compete
Humana, like every other major player in the healthcare space, is competing not only for market share but also for control of how patients and money flow through the system, according to Erik Gordon, clinical assistant professor in the University of Michigan Ross School of Business.
At the same time, Walmart could be looking to bolster its rapport with older customers while also staying competitive with online retailers, such as Amazon, Gordon said during an interview with Marketplace’s Sabri Ben-Achour.
“Walmart, which is the giant that scared everybody, is now a little bit scared itself,” he said. “It's scared of Amazon, and we think Amazon is going into the health care business. So Walmart is fighting back.”
One reason why Walmart may feel a sense of urgency came in January, when Amazon announced a healthcare-focused partnership with deep-pocketed Berkshire Hathaway and JPMorgan Chase. Although the details of their plan remain unclear, the trio said they are looking to solve some of the industry’s most vexing problems.
Will it happen?
Bloomberg’s Zachary Tracer and Ed Hammond confirmed Thursday evening that a potential Walmart-Humana deal is being discussed. But, citing one unnamed source, they reported that “an outright combination isn’t likely at this point.”
Both the Journal and Bloomberg reported that Walmart and Humana are considering a wide range of options, the details of which have not been made public. The companies did not respond Friday to requests from HealthLeaders Media for comment.
If the warm reception CVS-Aetna has received thus far is any indication, it seems likely that the verticality of a Walmart-Humana merger will find a smooth-sailing route through the regulatory review process.
Even if the companies reach a concrete deal and secure the necessary approvals, however, that doesn’t necessarily mean they will find success in the shifting healthcare sector. Nonetheless, their efforts are a positive sign, according to Zack Cooper, assistant professor of public health and economics at Yale University.
The company said its ratio reflects the fact that more than one-third of its workforce is part-time.
Mark J. Tarr, MBA, president and CEO of Encompass Health Corporation, headquartered in Birmingham, Alabama, earned more than $4.9 million in total compensation last year.
That was 134-times as much as the $36,707 the company paid its median employee, according to documents filed with the Securities and Exchange Commission (SEC) ahead of the annual Encompass stockholders meeting planned for May 3.
"The composition of our workforce greatly impacts this ratio," the company noted in its SEC filing.
"Over 35% of our workforce consists of employees working less than full-time, which is a common employment arrangement in the healthcare services sector. Flexible staffing arrangements that fit employees’ needs allow Encompass Health to attract and retain well-qualified employees."
Tarr's total compensation for 2017 included a base salary of $900,000, more than $2.7 million in stock awards, about $540,000 in option awards, nearly $1.2 million in non-equity inventive plan compensation, and nearly $47,000 in other compensation, according to the filing.
Tarr earned less than $2.5 million in total compensation each year in 2016 and 2015, when his compensation from stock awards and non-equity incentive plan payments was much lower, the documents note.
The CEO pay ratio Encompass calculated and disclosed—as newly required as a result of the Dodd-Frank Act—was much lower than the ratio reported earlier this month by HCA Healthcare.
HCA Chairman and CEO R. Milton Johnson’s total annual compensation was nearly $17.3 million in 2017, while the median total annual compensation of all HCA employees was less than $55,400, meaning Johnson earned 312-times as much as the median worker, according to the company's SEC filings.
The two Catholic systems seemed like a good pair, but the details thwarted their potential union. Perhaps the timing just wasn’t right.
Had the potential merger between Ascension and Providence St. Joseph Health been finalized, the combined Catholic system would have surpassed HCA Healthcare as the largest hospital operator in the country.
But the two organizations halted their discussionsabout the deal, as The Wall Street Journal reported Wednesday, citing unnamed sources. The talks are not expected to resume any time soon.
“A merger of this magnitude may have been too big for either to handle while still amalgamating their own constituent parts,” Mark Cherry, principal analyst at Market Access Insights for Decision Resources Group, told HealthLeaders Media in an email.
“Ascension is only now putting common branding on its operations in Wisconsin, Michigan, and other states, while PSJ’s operations remain very region-focused,” he added.
News of the halted talks comes after Ascension said this week it would sell St. Vincent’s Medical Center in Bridgeport, Connecticut, to Hartford HealthCare. Last month, Ascension signed a definitive agreement to add Presence Health’s 10 hospitalsto AMITA Health, a joint venture by its Alexian Brothers Health System and Adventist Midwest Health.
Providence St. Joseph, meanwhile, formed less than two years ago with the combination of Providence Health & Services and St. Joseph Health System.
So both systems are “still working out redundancies and efficiencies from their own earlier mergers,” Cherry said.
The Journal reported that Ascension’s directors backed “a new strategic direction to boost growth and labor productivity,” which was among the reasons cited for the proposed merger falling through. That could mean Ascension wanted to eliminate jobs, while Providence St. Joseph didn’t, Cherry said.
Ascension was already expected to cut about 600 jobs in Michigan, as The Detroit News and other outs reported earlier this month, citing a memo sent to employees.
All of this coincides with a flurry of M&A activity among major players in the hospital sector, including large Catholic systems.