Trustees of Chattanooga's only public hospital still appear deeply divided on paying a large sum of money to outgoing CEO Jim Brexler while Erlanger Health System is struggling financially.
Board members will meet Monday morning to discuss details of a severance package for Brexler. Trustees rejected a severance package in a 4-4 vote last month.
But experts on executive compensation say a contract providing a golden parachute is essential to attract competent managers in a field that is becoming increasing complex.
Even as public sentiment balks at lavish executive compensation, particularly to the leader of an organization that had losses, most departing hospital CEOs still are paid severance, said the executive director of the Corporate Governance Center at the University of Tennessee.
"The requirements [for executives] have become far more sophisticated in regard to the sea change we are seeing in health care," C. Warren Neel said.
Craig Becker, president of the Tennessee Hospital Association, agreed. The complexity of running a hospital, particularly a public hospital like Erlanger, means a CEO has to make unpopular decisions, Becker said.
"Their head is going to be on the chopping block. They need to have some soft landing," Becker said. "It is a tough time to be a hospital CEO. You are going to make people angry. And you have to have a backstop, a way to attract good-quality leadership."
Erlanger, which serves the tri-state region, has the area's only level one trauma center and provides about $80 million in unpaid and charity care every year.
Brexler served at Erlanger seven years and presided over some financial successes -- Erlanger earned a profit the last three years. But the hospital has lost more than $6 million so far this fiscal year, with $3 million of that in November.
Some board members blame Brexler for strained relationships with doctors, some of whom have taken their business -- lucrative surgeries -- to other hospitals.
Board members Monday will talk about whether to approve severance for Brexler and how much that should be.
Trustees rejected a salary and benefits package worth about $727,000 for Brexler on Dec. 12. At the same meeting, the board voted unanimously to accept Brexler's resignation, effective Dec. 31.
In mid-November, Erlanger announced Brexler was retiring. At the time, Kim White, secretary of the board of trustees, said the board "accepted his resignation," though she did not specify what circumstances prompted it. However, Brexler has not submitted a letter of resignation, hospital spokeswoman Pat Charles said.
The proposed agreement would have provided 15 months of severance for Brexler, worth about $713,000. He also would keep his Erlanger health coverage for 18 months, paying his employee portion, a benefit worth about $15,000, officials said. The package would have paid Brexler about $185,000 less than the maximum he's entitled to in his contract, Erlanger officials have said.
Trustees Ronald Loving, Donnie Hutcherson, Kim White and Dr. Phyllis E. Miller voted for the severance package, while Richard Casavant, James Worthington, Jennifer Stanley and Russell King voted against it.
Since 1998, Erlanger Health System has agreed to pay hundreds of thousands of dollars to top executives after they resigned or were ousted.
Skip Reeder, CEO from November 1994 to March 1998, was paid $518,000 after he resigned as hospital head.
Dennis Pettigrew, CEO from October 1998 to February 2003, was paid $131,000 in a court settlement from a lawsuit he filed after he was fired.
Brexler's contract states that if he is let go without cause, he would receive 18 months' pay and benefits as severance. If he is fired for cause, he's entitled to nothing. Other scenarios would apply if he voluntarily terminated the contract.
The contract terms allow the board and Brexler to come to an agreement, and that provision was cited in the deal trustees rejected Dec. 12. In the weeks since the last board meeting, negotiations between the hospital and Brexler have continued.
Trustees Michael Griffin and Dr. Charles Longer did not attend the December meeting. Both men said Friday they plan to attend the meeting Monday, but wouldn't say if they will support a severance package.
Miller said Friday she has not seen a renegotiated package and is not sure if board members will be asked to reconsider the same package or a new agreement.
Brexler's contract leaves them little option but to pay the severance package, Miller said.
"It does stick in the craw a little bit to pay out that kind of money at a time like this, but we've got a contract and we've got to honor that contract," Miller said.
King and Casavant disagree.
"The board acted properly on [Brexler's] resignation and there's nothing more to talk about," King said.
Casavant said he would never vote to support a severance package for Brexler.
Miller declined to discuss any advice to the board from its attorney, citing attorney-client privilege. But she said unless she is presented different information Monday, she believes trustees need to approve the severance package.
"Even though it sounds like a lot of money, it is in line of what similar institutions have paid," Miller said. "I hope we can get this resolved and move on."
Although hospitals continue to pay compensation, Neel said contracts are being negotiated with more detail and more attention paid to compensation. If there are questions about whether severance should be paid, the contract was not written clearly enough, he said.
Meanwhile, Becker said he expects, as health care profits become tighter, severance packages will be become more controversial.
"The reimbursement pie is getting smaller, and the table manners are getting worse," he said.