West Penn Allegheny's $17 million payout to 12 former execs shows turmoil at the top
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The West Penn Allegheny Health System, which lost $75 million over the first three quarters of the current fiscal year, paid out $17.35 million two years ago to 12 administrators who have left the organization, including nearly $9 million in retirement and other deferred compensation, according to its recent tax filing.
The turnover of executives not only affects the bottom line but also speaks to ongoing disruption within the leadership team at West Penn Allegheny, which likely will see further changes if insurer Highmark wins approval to acquire the region's second-largest health system later this year.
"From an organizational standpoint, that's really tough on morale and productivity," said James McTiernan, principal and co-founder of Triad USA, a Downtown employee benefits consulting firm. "I don't care who you are, it's got to affect your performance."
Steve Foreman, an associate professor of health administration and economics at Robert Morris University, agreed: "When you have that kind of instability, you have a lot of things going on in terms of the overall direction of the entity. You really don't know what the long-term strategy is."
Highmark has been clear that it intends to develop a regional health care network, with the West Penn Allegheny Health System serving as its flagship provider.
But what that means within WPAHS is unclear, particularly given the high turnover of key executives.
"WPAHS has been working to turn around its operations for some time, which has necessitated different leadership skills to meet and address different challenges," said spokeswoman Kelly Sorice on Thursday.
"We hope to gain the necessary approvals for the proposed affiliation with Highmark soon, which we believe will enable us to stabilize leadership, build up programs and further improve our finances."
Most prominent among the departed leaders is former WPAHS president and CEO Christopher Olivia, whose total reported compensation for 2010 amounted to $7.39 million, or nearly $1.5 million more than Jeffrey Romoff, president and CEO of the much larger UPMC. Of that $7.39 million, about $5.4 million was for retirement or deferred compensation.
The data come from IRS tax filings for 2010, the most recent available for the two nonprofits. Although some of the WPAHS executives left after that year, the costs of severance packages and benefits is accounted for in that year's data.
Dr. Olivia resigned a year ago after three years at the WPAHS helm, when Highmark announced plans to acquire the financially ailing health system. He has since been working as a consultant for Highmark under a contract that ends this summer.
Three other former administrators surpassed $1 million-plus in compensation and benefits after brief tenures with West Penn Allegheny:
• Former Chief Administrative Officer Roy Santarella received $2.55 million in salary and benefits, more than half of that retirement and deferred payments. Mr. Santarella left West Penn Allegheny in November after slightly more than three years with the health system.
• Chief Medical Officer Sanford Kurtz received $1.71 million in salary and benefits, including $684,210 in retirement and other deferred compensation. He left his position in July after less than two years.
• Executive Vice President for Hospital Operations Dawn Gideon received $1.23 million in compensation and benefits, including $530,667 in retirement and other deferred compensation. She left in October 2010 after less than two years in the position, although she had worked as a consultant for the health system in 2008-09.
Altogether, the 12 departed administrators made $17.35 million in compensation and benefits, and nearly $9 million in retirement and other deferred compensation.
Contracts that include severance payments are a common benefit offered to those in leadership positions to attract and retain top talent. Both Mr. McTiernan and Mr. Foreman said while the amounts paid departing WPAHS executives seem high, they also may have been unavoidable given the uncertainty surrounding the health system.
"You're paying a premium to those who would not normally come into this entity to encourage them to do so," Mr. Foreman said. "They probably had to overpay."
Looking back, Dr. Olivia's three-year tenure actually has marked a period of comparative stability in the West Penn Allegheny executive suite.
When Dr. Olivia started, he was the third WPAHS president and CEO in less than a year.
When he resigned last June, Dianne Dismukes was named interim president and CEO for the health system. By November, she was replaced by physician Keith Ghezzi, who also has an interim appointment. Ms. Dismukes is no longer employed by West Penn Allegheny.
Still, the costs add up and the turnover at the top creates uncertainty and anxiety among remaining staff "about who's going to be in charge and what they'll be doing," Mr. Foreman said.
"And now that Highmark's in it, they're going to do it again."
First Published May 18, 2012 12:00 am