Pay Is Healthy at National Medical Enterprises : The five top executives at the hospital operating firm brought home a total of $35.5 million last year.
National Medical Enterprises, operator of acute care and psychiatric hospitals, believes in healthy compensation for its executives.
Last year, the company’s five top executives were listed among the 30 highest-paid executives of California-based public companies, according to The Times’ annual executive compensation survey.
The five executives together in 1991 year took home $35.5 million in total compensation--an amount equal to about 13% of the company’s net earnings in fiscal 1991. That includes $17.5 million paid to NME Chief Executive Richard Eamer, the state’s highest-paid executive, according to the survey.
NME’s second in command, Leonard Cohen, earned $8 million in pay, stock and lucrative perks, which made him the third-best-paid executive in the state. John Bedrosian, senior executive vice president, earned $4.4 million, and Norman Zober and Michael Focht, who head two NME subsidiaries, each earned about $2.6 million.
Shareholder and consumer activists call these packages everything from “shameful” to “outrageous.”
However, the company defends its compensation plans by noting that its executives earned the bulk of their pay through stock options and stock grants, programs designed to tie pay to performance on behalf of shareholders.
“It is standard practice among American corporations to compensate managers for their ability to enhance shareholder value,” said David Olson, an NME vice president. “If there is a better way to tie management performance to shareholders than through stock, we’d like to hear what it is.”
Nonetheless, the generosity of NME’s pay packages raises questions on three fronts:
* NME’s pay for executives appears excessive when compared to that of lower-level workers--a sore subject with legislators and some compensation experts who believe there should be some correlation between what top officers earn and the earnings of lower-ranking employees. Eamer earned about 600 times what the company paid some of its nurses in 1991.
“The health care industry features some of the lowest-paid workers around. They have tremendous nursing shortages because there doesn’t seem to be enough money to pay nurses,” said Graef S. Crystal, a professor at UC Berkeley. “And here is this guy and his top people carting away millions of dollars.”
* The pay issue is pertinent to the national debate about the quality of health care and whether that quality has been affected by a relentless pursuit of profits by publicly owned health care concerns. NME has been involved in this debate because of alleged abuses at its psychiatric hospitals.
In lawsuits filed against the company, several patients said they were improperly incarcerated in NME psychiatric units so that the company could bill their insurers thousands of dollars for care that, in some cases, was never needed nor received. The company will not discuss pending litigation.
“What does this tell us about why health care costs are rising at double the rate of inflation? It tells us our health care dollars are going to pay profits to shareholders, people’s salaries and perks,” said Arthur A. Levin, director of the Center for Medical Consumers in New York. “That might even be OK if they (health providers) were really helping people. But they are selling psychiatric hospitals and substance abuse centers like you would soap.”
* Shareholder activists are incensed about the salaries because they maintain that the company’s performance for stockholders has been lackluster over the last several years.
NME, which operates hospitals, psychiatric units and rehabilitation centers nationwide, ranked 882nd out of 1,000 companies in total return to shareholders, according to a study by the United Shareholders Assn. last year.
However, Olson maintains that such rankings are unfair because they measure a company’s performance only over a set period of time. If the time period were different, he said, NME could rank highly.
And some analysts maintain that NME’s performance has been better than the norm in the health care industry.
“Their performance was good until they had the problems with the psychiatric business,” said Todd B. Richter, senior vice president at Dean Witter Reynolds in New York.
Moreover, Richter said that the current complexity of operating a health care concern may warrant higher-than-average pay to executives in the medical industry.
“The health care business has been going through a period of tremendous change,” Richter said. “The skills that are needed to operate in this business environment are relatively unique. It is not like other businesses where there are more than enough skilled managers to go around. There’s a shortage of talented management in health care.”
Olson also dismissed other criticisms related to executive salaries and services provided to NME patients.
“Consumers should judge our facilities on whether or not we are providing quality care that is priced competitively with the local market,” he said.
